Deposit invoices: billing the upfront payment and the balance
Two invoices for one job, tax on each part, and the date that decides when the tax is due.
A deposit invoice asks for part of the price before the work starts or the goods are delivered, and a balance invoice follows for the rest. Done properly, the two documents together charge exactly the full price and the full tax, no more, and each one carries the tax on its own share. For a UK job worth £12,000 before VAT with a 30% deposit, the first invoice is £4,320.00 including £720.00 of VAT and the balance invoice £10,080.00 including £1,680.00. Timing matters as much as arithmetic: HMRC's VAT Notice 700 says that issuing a VAT invoice or receiving a payment before the work is done creates a tax point for the amount invoiced or received, so VAT on a deposit is due in the return for the period in which you invoiced or received it, not when the job ends. A security deposit that you will refund is different and creates no tax point. The calculator above splits any project into its two invoices for each country.
Deposit now, balance later: the two invoices
Deposit invoice total
£4,320.00
| Tax on the deposit | £720.00 |
| Balance invoice total | £10,080.00 |
| Tax on the balance | £1,680.00 |
Tax is due on each payment as it is invoiced or received.
Checked by Radif Partners · Editorial policy · Methodology
Two invoices, one tax bill
The test of a deposit and balance pair is simple: add the tax on both and you must get the tax on the whole job. The engine checks it for a $12,000 project billed 30% up front in each tax system.
| Where | Deposit invoice (30%) | Balance invoice (70%) | Tax on both | Tax on the whole job |
|---|---|---|---|---|
| UK, VAT 20% | £4,320.00 | £10,080.00 | £2,400.00 | £2,400.00 |
| Ontario, HST 13% | $4,068.00 | $9,492.00 | $1,560.00 | $1,560.00 |
| Quebec, GST + QST | $4,139.10 | $9,657.90 | $1,797.00 | $1,797.00 |
| Australia, GST 10% | $3,960.00 | $9,240.00 | $1,200.00 | $1,200.00 |
| Texas, 6.25% + 2% local | $3,897.00 | $9,093.00 | $990.00 | $990.00 |
A cent of difference can appear when each invoice is rounded separately, which is normal and accepted: each invoice is rounded on its own amount. What is not acceptable is a deposit invoice without tax followed by a final invoice that taxes the full price, or the reverse.
When the tax on a deposit is due: the UK tax point
In the UK the date matters because it decides which VAT return the tax goes into. For services the basic tax point is when the work is performed; for goods it is when they are removed or made available. VAT Notice 700 adds that if you issue a VAT invoice or receive a payment before that basic tax point, the date of the invoice or of the payment, whichever comes first, becomes the tax point for the amount invoiced or received. A deposit received in March for work done in May is therefore VAT you declare for March.
The same paragraph allows a VAT invoice issued up to 14 days after the basic tax point to set the tax point instead, but it does not undo a tax point already created by a deposit: that part was fixed when you invoiced or received it. If you work this way, keep the deposit invoice and the balance invoice in the same file so each VAT period can be traced.
Not every deposit is a payment for the supply. HMRC's example is the deposit taken as security for the safe return of hired goods, refunded on return or kept to cover loss or damage: it creates no tax point. A deposit held by a third party as stakeholder in a property sale creates none until the money is released to the seller. Both are rarely what a freelancer or tradesperson takes, but they explain why a damage deposit should not appear as a taxable line.
Cancelled jobs and kept deposits
HMRC is clear that VAT is due on all charges, deposits and fees that are full or part payments for a supply. If the customer walks away and you keep the deposit, you still owe the VAT you charged on it; the payment cannot be relabelled as compensation outside the scope of VAT. If you refund it, the VAT you accounted for can be reclaimed in your next return, and a credit note against the deposit invoice documents the refund. The credit note template prints the reference to the original invoice.
Balance invoice after a deposit
Balance due
$4,400.00
| Job total with tax | $6,050.00 |
| Tax on the whole job | $550.00 |
| Deposit deducted | $1,650.00 |
Laying out the balance invoice
The generator supports the layout most accountants prefer: list the whole job at its full price, let the tax be computed on the full amount, then enter the deposit in "Deposit paid". The invoice shows the total, the payment received and the balance due. A Victorian joiner who quoted $5,500 plus GST for a kitchen and took $1,650 up front issues a final tax invoice of $6,050.00 with $550.00 of GST and a balance of $4,400.00. Used this way, the final document repeats the GST on the whole job, so it should be read together with the deposit document: if your deposit was itself a tax invoice with GST, bill only the remaining share on the final invoice instead, so the GST is not counted twice in your records.
In practice, choose one of the two methods and keep to it. The share method (deposit invoice for 30%, balance invoice for 70%) is the clearest for VAT and GST because each document carries its own tax. The full-price method suits a receipt-style deposit that was not a tax invoice, such as a booking payment acknowledged by a receipt.
Deposits in the other countries
Canada, Australia and the US states each have their own rules on when tax on an advance payment becomes due, and this site does not model them; the arithmetic above is the same everywhere, the timing should be checked with the authority. In Canada, the deposit invoice must still meet the input tax credit details for its own total, so a $4,000 deposit invoice needs the customer's name and your payment terms like any invoice of $500 or more (GST/HST invoice requirements). In Australia, a deposit tax invoice of $1,000 or more needs the buyer's identity or ABN.
Quote, deposit, balance: the paper trail
A tidy job leaves three documents: the quote that states the price and the deposit percentage, the deposit invoice, and the balance invoice that refers to both. Number them in their own series, as the numbering guide suggests, and quote the deposit invoice number on the balance invoice. If the job runs over several months, interim invoices follow the same logic as a deposit: each one carries the tax on its own share, with its own tax point.