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When you lose goods because of things like losses in the post, theft or damage, you'll 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, there's no VAT.
Whether or not there's any VAT due depends on whether you've actually supplied the goods. You'll need to take into account what happened to them, who was responsible for them at the time and whether or not you issued a VAT invoice. It's also important to take into account any credit you've given the customer.
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Sometimes you might sell goods to a customer, but the customer never receives them because they've gone astray. This could happen, for example, if goods you send get lost in the post.
The way you should deal with the VAT on goods that get lost after you make a sale depends on the details of the agreement between you and your customer - your contract. The VAT treatment is down to who's responsible for losses - you or the customer. You probably cover details like this in your standard customer terms and conditions.
If the contract makes your customer 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.
If the contract makes you responsible for any losses before the goods are delivered, then the way you account for VAT depends on whether or not you've issued a VAT invoice.
If you have issued a VAT invoice to your customer, then VAT is due on the amount you invoiced, less the value of any credit you've given the customer. So if you give your customer a credit for the full amount they paid then there's no VAT due. Even if there's no VAT due because you've given your customer a full refund, you should still show details of all the transactions in your VAT records.
If you haven't issued a VAT invoice to your customer then there's no VAT due. This is because you haven't supplied anything. You should make a note in your VAT records to explain that the goods were lost and that you haven't issued a VAT invoice.
If you have goods stolen from your premises - perhaps from a shop or warehouse - then there's no VAT due on them as long as you haven't already invoiced a customer for them.
There's no VAT due because you haven't supplied anything.
Sometimes goods might be stolen from your premises after you've 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's collected.
If your contract with the customer means that they're responsible for the goods while they're on your premises - perhaps because you've completed the sale and you're just storing them for the customer - then you've supplied the goods and VAT is due on them.
If the customer isn't responsible for the goods when they're stolen, then the way you deal with the VAT depends on whether or not you've issued a VAT invoice:
If you use one of the VAT retail schemes and you've had goods stolen then this might involve making adjustments to your scheme calculations for VAT purposes. You'll need to check the information for the particular scheme that you use.
Direct calculation retail schemes - theft
Point of sale retail scheme - theft
To avoid paying VAT unnecessarily on goods that you lose because of fraud, you'll need to:
When you contact HMRC you may need to give full details of the fraud, including a crime or case reference number you've 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 in your particular situation.
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. Alternatively, 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're not second-hand goods, so you can't 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's no VAT due on the payment from them.
Sometimes goods might be destroyed meaning that you can't sell them at all. If this happens to you and you hand over the goods - or what's left of them - to your insurer, there's no VAT due. And there's 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.
Read about keeping records, invoicing and accounting for VAT
