The Lemon Fool

Accountancy question here.

Here's the position:

We cannot afford to do some of our expensive development as fast as the client wants.
We have a client who will pay for this work to cover our costs and the client will then deduct this amount from future business invoices as we deploy our software for them.

So, it is our future earnings that are effectively being lent to us now. The client will be in net zero position. We will have paid for our own development.

Do I raise an invoice to get the money from them? If so, zero vat I assume. Or is there a different financial method I should use? There's probably a simple answer that I can imagine but I need to show the money in the books somehow, and get it from the client's account. I think it's not quite a loan agreement here. We have very good relationships with the client if that helps.

Cheers,
mjb

I would have thought you just raise an invoice, with VAT for "initial contract payment" or suchlike.

Here are the vat rules re the tax point. This may be very different from the tax point re calculating profits.

https://www.gov.uk/vat-record-keeping/t ... -tax-point

Difficult to think of a position where you would not charge VAT.

Imagine a £500k project where you ask for 25% at the start, you would not have done any of the work, but you would still charge VAT, or am I missing something (as I often do)

Surely the simplest is for you to issue an invoice with VAT added.

You receive the money and the VAT -the VAT you pay or account to HMRC for on your next return.

Your client pays you the money and VAT and he claims back the VAT on his next return.

If the VAT amount is much of a problem for your client then agree on a date for the invoice so there is minimal delay between him paying you and being able to reclaim it on his next return.