Help with Accounting for Subscription Payments

Discussion in 'Accounts & Finance' started by simonp1984, Sep 8, 2019.

  1. simonp1984

    simonp1984 UKBF Newcomer Free Member

    1 0
    I have recently taken over a subscription box eCommerce business.

    My question relates to how to account when customers pre-pay for their subscription. So for example, lets say the customer pays for a 12 month subscription. The payment is taken in full immediately, but the contract will be fulfilled monthly, as one box will ship for each of the 12 months.

    Do we account for the VAT at the time the payment is taken, or do we need to spread it across the length of the contract?
     
    Posted: Sep 8, 2019 By: simonp1984 Member since: Sep 8, 2019
    #1
  2. ecommerce84

    ecommerce84 UKBF Regular Free Member

    553 163
    If I were in your shoes I would have accounted for the VAT at the time of payment.

    Spreading it across 12 months sounds messy.

    This on the HMRC page seems to back this up:

    https://www.gov.uk/vat-record-keeping/time-of-supply-or-tax-point

    Depending on whether you issue a VAT invoice then it’s either (text taken from link above):

    1. Payment or invoice issued in advance of supply = Date of payment or invoice (whichever is earlier)

    2. Payment in advance of supply and no VAT invoice yet issued = Date payment received

    I assume your system creates an invoice at the point of payment anyway in which case both options are the same.
     
    Posted: Sep 8, 2019 By: ecommerce84 Member since: Feb 24, 2007
    #2
  3. Victoria_V

    Victoria_V UKBF Regular Full Member

    125 16
    Hello! Accounting for VAT for annual subscriptions may depend on when you raise the VAT invoices/receipts for these customers. If you issue invoices/receipts at the beginning of the 12-month subscription, then you may be able to account for the VAT when the invoice was raised.

    If you issue an invoice/receipt for every payment taken, then you will have to account for the VAT every time a payment is taken.
     
    Posted: Sep 9, 2019 By: Victoria_V Member since: May 29, 2019
    #3