Advances, booking amounts and deposits: when tax arises
Many businesses take money before they deliver — an advance, a booking amount, a deposit. A common assumption is that sales tax only bites when the goods finally change hands. The time-of-supply rule says otherwise for advances, and the distinction between an advance and a refundable deposit is where the answer turns. This matters for cash flow and for getting the tax period right.
The time-of-supply rule
Under the Sales Tax Act 1990, the time of supply is the earlier of the delivery of the goods or the receipt of payment in respect of that supply, and where a part payment is received it is accounted for in the return for the tax period in which it is received. The consequence is that receiving money for a taxable supply can be the event that brings the tax into charge — not only physical delivery. So a payment taken in advance of delivery can require output tax to be accounted for in the period the payment lands, rather than deferred to when the goods eventually move.
Advances and booking amounts
An advance or a booking amount paid towards a taxable supply of goods is, in substance, a payment in respect of that supply. It therefore falls within the payment limb of the time-of-supply rule and should be accounted for when received. For a business that routinely takes booking amounts — say, orders confirmed with a part payment — this means the output tax on the amount received is a current-period obligation, not something to hold until the delivery date. Assuming advances are tax-free until delivery is a common and correctable error that can leave a period under-declared.
Refundable security deposits are different
A genuine refundable security deposit stands apart. Because it is not consideration for a supply — it is security that may be returned to the payer — it generally stays outside the sales tax net while it remains a true deposit. The position changes only if and when the deposit is applied against an actual supply, at which point it becomes consideration and is treated accordingly. The line that matters is therefore between a payment towards goods (an advance, within the net) and security that may be refunded (a deposit, outside the net until applied). Labelling something a "deposit" does not by itself keep it out of charge if it is in substance an advance.
Common mistakes
- Assuming no tax arises until delivery, and so under-declaring the period in which an advance was actually received.
- Labelling an advance towards goods a "deposit" to keep it out of charge, when in substance it is consideration for a supply.
- Failing to account for part payments in the tax period they are received.
- Relying on an outdated rule, given that the statutory wording on advances has changed over the years.
We map your booking, advance and deposit flows to the time-of-supply rule so output tax is declared in the right period.
Avail our sales tax servicesWhere it fits
The time-of-supply rule also drives the treatment of hire-purchase and installment sales, where the timing is defined differently again, and it feeds directly into what you declare on each sales tax return and how output tax is accounted for. Because the statutory wording on advances has shifted over time, this is an area to confirm against the current text rather than a remembered rule.
Sources
This guide is written against the official and clearly labelled professional references below. Rates, thresholds and portal procedures change between reviews, so open the primary source before relying on a figure.
Questions people also ask
Does sales tax apply to an advance payment?
It can. The time of supply is defined as the earlier of the delivery of the goods or the receipt of payment, and part payments are accounted for in the tax period they are received. So a payment received in advance for a taxable supply can bring the tax into charge in that period, even though the goods have not yet been delivered. The exact effect depends on the current statutory wording.
Is a refundable security deposit subject to sales tax?
Generally not while it remains a genuine refundable deposit, because it is not consideration for a supply — it is security that may be returned. The position changes if and when the deposit is applied against an actual supply, at which point it becomes consideration. Distinguishing a true refundable deposit from an advance towards goods is the key.
How is a booking amount treated?
A booking amount paid towards a taxable supply of goods is, in substance, an advance, so it falls within the payment limb of the time-of-supply rule and should be accounted for when received. It is different from a refundable deposit. Businesses that routinely take booking amounts need to account for the output tax at the point of receipt rather than waiting until delivery.
Send the tax year and the transaction or filing involved, and we will tell you what is actually required.
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