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Overview

When you lose goods because of things like losses in the post, theft or damage, you鈥檒l need to make sure you deal with the VAT correctly. In some cases, VAT will still be due on the goods but in other cases it won鈥檛.

The VAT treatment depends on whether or not you鈥檝e actually supplied the goods, what happened to them, who was responsible for them at the time and if you鈥檝e issued a VAT invoice. You also need to take into account any credit you鈥檝e given the customer.

Goods that have been lost

Sometimes you might sell goods to a customer, but they never receive them because they鈥檝e gone astray. This could happen, for example, if goods you send get lost in the post. The way you deal with the VAT on goods that get lost after you make a sale depends on the agreement between you and your customer (your contract). The VAT treatment depends on who鈥檚 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鈥檙e responsible for any losses before the goods are delivered, then the way you鈥檒l account for the VAT will depend on whether or not you鈥檝e issued a VAT invoice.

If you鈥檝e issued a VAT invoice to your customer, VAT is due on the amount you invoiced, less the value of any credit you鈥檝e given the customer. So if you give your customer a credit for the full amount they paid there won鈥檛 be any VAT due. Even if there鈥檚 no VAT due because you鈥檝e given your customer a full refund, you should still show details of all the transactions in your VAT records.

If you haven鈥檛 issued a VAT invoice to your customer then there鈥檚 no VAT due. This is because you haven鈥檛 supplied anything. You should make a note in your VAT records to explain that the goods were lost and that you haven鈥檛 issued a VAT invoice.

Goods that have been stolen

If goods are stolen from your premises there鈥檚 no VAT due on them as long as you haven鈥檛 already invoiced a customer for them. There鈥檚 no VAT due because you haven鈥檛 supplied anything.

Goods sold to a customer have been stolen

Sometimes goods might be stolen from your premises after you鈥檝e sold them to a customer. This may happen, for example, if you take delivery of something from a supplier to fulfill a customer order but it gets stolen before it鈥檚 collected. If your contract with the customer means that they鈥檙e responsible for the goods while they鈥檙e on your premises - perhaps because you鈥檝e completed the sale and you鈥檙e just storing them for the customer - then you鈥檝e supplied the goods and VAT is due on them.

If the customer isn鈥檛 responsible for the goods when they鈥檙e stolen, then if you:

• have issued a VAT invoice to your customer VAT is due on the amount you invoiced.
• haven鈥檛 issued a VAT invoice there鈥檚 no VAT due - this is because you haven鈥檛 supplied anything

VAT retail schemes

If you use one of the VAT retail schemes and you鈥檝e had goods stolen this might involve making adjustments to your scheme calculations for VAT purposes. You鈥檒l need to check the information for either a direct calculation retail scheme or a point of sale retail scheme.

Goods lost because of fraud

To avoid paying VAT unnecessarily on goods that you lose because of fraud, you鈥檒l need to:

• report the incident to the police
• contact HM Revenue & Customs (HMRC) and give them details of the case

When you contact HMRC you may need to give full details of the fraud, including a crime or case reference number you鈥檝e been given by the police. So have as much information as possible to hand. HMRC will look at the case and advise you of what to do.

Goods that have been damaged or destroyed

Damaged goods that you sell on

From time to time something that you normally sell might get 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 or it might have some scrap value. If you do sell the damaged goods, VAT is due in the normal way on whatever you sell them for. They鈥檙e not second-hand goods, so you can鈥檛 include them in any second-hand margin scheme that you operate for VAT. If you get some money from your insurer to cover the damage, there鈥檚 no VAT due on the payment from them.

Goods destroyed so that they鈥檙e not saleable

Goods might be destroyed meaning that you can鈥檛 sell them at all. If this happens and you hand over the goods - or what鈥檚 left of them - to your insurer, there鈥檚 no VAT due. And there鈥檚 no VAT due on any money you receive from your insurer. HMRC will need to see evidence of your insurance claim, and details of any insurance payment, on their next inspection visit to your business.