Booking advances and deposits: when is VAT due?
Written by Ilias Aarrass6 min read · Published on · Last reviewed on 
In short
On a deposit, VAT is due in the period in which you invoice or receive the money, even if you do the work months later; a security deposit carries no VAT.
- Send an invoice with the VAT specified for a deposit too; a payment request without an invoice is not a valid VAT document.
- On the final invoice you charge only the remainder, referencing the deposit invoice.
- If you later retain a security deposit because the client cancels or damages something, it becomes payment and VAT is due at that moment.
- If the job falls through and you refund, you correct with a credit note in the current period; there is no need to go back to the old one.
A client pays in advance for work you will only do in two months. When do you remit that VAT: now or later? The main rule is stricter than many entrepreneurs think. As soon as you receive payment, VAT is due, even if not a stroke of work has been done. This article explains how to process that.
The main rule: receipt is the moment
For VAT you become liable when you issue the invoice, or earlier if you have already received payment. Receiving a deposit in March for a job in May means that VAT belongs in your first-quarter return.
That is separate from determining profit. For income tax you recognise turnover only when earned, so on completion. For VAT the cash is decisive. The two being out of step is normal.
Deposit, advance or security: three different things
The words are used interchangeably, but fiscally these are different situations with different consequences.
| Type | What it is | VAT |
|---|---|---|
| Deposit | Part of the price, paid up front | Due immediately |
| Instalment invoice | Part of a long-running assignment | Due per instalment |
| Security deposit | Security, to be returned | No VAT |
| Disbursement | Advance on your client's behalf | No VAT |
Security deposit: no VAT, until it is retained
A security deposit is collateral, not payment for a supply. So you charge no VAT on it. But if you later retain it because the client damages something or cancels, it becomes payment after all and VAT is due at that moment.
So book a security deposit to a suspense account rather than as turnover. That way you see at a glance which amounts still need returning.
How to book a deposit
The pattern is always the same: invoice what you receive, and at final settlement only the remainder. That prevents declaring the same turnover twice.
- Send a deposit invoice with the amount and VAT specified.
- Declare that VAT in the return for the period you received payment.
- On completion, invoice the remainder, referencing the deposit invoice.
- State clearly on the final invoice what has already been paid, so your client does not pay twice.
€ 5,000 assignment with 40% up front
- March: deposit invoice
- € 2,000 + € 420 VAT
- Q1 return
- remit € 420
- May: final invoice remainder
- € 3,000 + € 630 VAT
- Q2 return
- remit € 630
Result: € 1,050 VAT in total, spread over two quarters
If the assignment falls through
Refunding the deposit means correcting the VAT with a credit note. You process it in the return for the period you issue it; there is no need to go back to the old period.
Retaining the deposit as a cancellation fee is trickier. If it compensates work already done or reserved capacity, it is taxed. If it is damages without any supply in return, it falls outside VAT. That distinction is narrow, so record the reason in your correspondence; see also no-shows and cancellations.
Why you still want deposits
A deposit costs a little more administrative work but gains you two things. You have money in before incurring costs, and you know the client is serious. On larger assignments that is the difference between coping and not coping when someone fails to pay.
Record the deposit in your quote and terms and conditions so no dispute arises later. See also when a client does not pay.
Frequently asked questions
When do I remit VAT on a deposit?
In the period you receive payment, even if you do the work later. For VAT, the moment of receipt or invoicing is decisive, not completion.
Is there VAT on a security deposit?
No, as long as it is genuine collateral you return. If you later retain it because the client cancels or damages something, it becomes payment and VAT is due at that moment.
Must I invoice a deposit?
Yes. A payment request without an invoice is not a valid VAT document. Your client cannot deduct the VAT and your records are incomplete.
What if the assignment is cancelled?
Refunding it means correcting with a credit note in the current period. Retaining it as a cancellation fee depends on what it compensates: work done or reserved capacity is taxed.
Sources
- Advance invoices: charging VAT and stating the amountBelastingdienst · belastingdienst.nl
- Invoice basis: when the VAT becomes dueBelastingdienst · belastingdienst.nl
Sources checked on
This article provides general information based on the rules known for 2026 and does not replace personal tax advice. For your specific situation, we're happy to take a look with you.
