VAT Treatment for Lost or Damaged Goods
This blog provides an overview of the VAT Treatment for Lost or Damaged Goods. It is based on information obtained from the HMRC web site https://www.gov.uk/guidance/vat-lost-stolen-damaged-or-destroyed-goods
When you lose goods due to issues such as losses in the post, theft or damage, you will need to make sure that you deal with the VAT correctly. In some cases, VAT will still be due on the goods but in other cases it will not.
The VAT Treatment for Lost or Damaged Goods depends on whether or not you have actually supplied the goods, what has happened to them, who was responsible for them at the time and whether you have issued an invoice. You also need to take into account any credit that you have given the customer.
Goods that have been lost
Sometimes you might sell goods to a customer but they never receive them because they have gone astray. This could happen, for example, if goods you send become lost in the post. The way that you deal with the VAT on goods that become lost after you make a sale depends on the contract agreement you have between you and your customer.
The VAT treatment depends on who is responsible for losses – you or the customer. You may cover details like this in your standard customer terms and conditions.
Customer is responsible for losses
If your customer is responsible for any losses before the goods are delivered then VAT is due on the full amount of the sale. You should account for the VAT in the same way as you would for a normal sale.
You are responsible for losses
If you are responsible for any losses before the goods are delivered then the way that you will account for the VAT will depend on whether or not you have issued a VAT invoice.
If you have issued a VAT invoice to your customer, VAT is due on the amount you invoiced less the value of any credit you have given the customer. So if you give your customer a credit for the full amount they paid there will not be any VAT due.
Even if there is no VAT due because you have given your customer a full refund, you should still show details of all the transactions in your VAT records.
If you have not issued a VAT invoice to your customer then there is no VAT due. This is because you have not supplied anything. You should make a note in your VAT records to explain that the goods were lost and that you have not issued a VAT invoice.
Goods that have been stolen
Sometimes goods might be stolen from your premises after you have sold them to your customer. This may happen, for example, if you take delivery of stock from a supplier to fulfill a customer order but it is stolen before it is collected.
If your contract with the customer means that they are responsible for the goods while they are on your premises (e.g. perhaps because you have completed the sale and you are just storing them for the customer), then you have supplied the goods and VAT is due on them.
If the customer is not responsible for the goods when they are stolen then if you:-
- Have issued a VAT invoice to your customer VAT is due on the amount that you invoiced
- Have not issued a VAT invoice then no VAT is due since you have not supplied anything
VAT retail schemes
If you use one of the VAT retail schemes and you have had goods stolen this might involve you making an adjustment to your scheme calculations for VAT purposes. You will need to check the information for either a direct calculation retail scheme or a point of sale retail scheme.
Goods lost because of fraud
In order to avoid paying VAT unnecessarily on goods that you lose due to fraud, you will need to:-
- Report the incident to the police
- Contact HMRC and give them details of the case
When you contact HMRC you may need to give them full details of the fraud. This could include a crime number or case reference number you have been given by the police. You should have as much information to hand as possible. HMRC will look at the case and advise you what to do.
Damaged goods that you sell on
From time to time, something that you might normally sell might be damaged. For example, a member of staff might drop something and scratch it.
You might decide to sell the damaged item at a discounted price as damaged goods. Alternatively, it might have some scrap value. If you do sell the damaged goods, VAT is due in the normal way on whatever price you sell them for.
Damaged goods that you sell on are not second hand goods. Therefore you cannot include them in any second hand margin scheme that you operate for VAT. If you do receive some money from your insurer, there is no VAT due on the payment from them.
Goods destroyed that are not saleable
Goods might be destroyed meaning that you cannot sell them at all. Should this happen and you hand over the goods to your insurer, there is no VAT due. Should you receive money from your insurer for the damaged goods, there is no VAT due on the amount received.
HMRC will require to see evidence of your insurance claim on their next VAT inspection visit. They will also look at details of any insurance payment that you may have received.
For further information relating to the VAT Treatment for Lost or Damaged Goods, please contact Stallion Accountancy Services.