A client paid a 50% deposit including VAT; how do I separate the tax in the deposit?
Extract the tax from the deposit at the same rate as the full price. A project of 5,000 net with 15 entered as the rate comes to 5,750 gross with 750 of tax. A 50% deposit is 2,875, and extracting it gives 2,500 net and 375 tax, exactly half the project's tax, with the second payment carrying the rest.
Start from the whole project
Before splitting any payment, know the figures for the whole job. In the VAT calculator, choose add, enter the project value before tax, 5000, and the rate that applies to your service, here 15. Tax 750, gross 5,750. That last figure is what you agreed with the client in your quote, and it is what the deposit percentage is taken from.
Splitting the deposit
- Work out the deposit from the gross total: 50% of 5,750 is 2,875.
- In the calculator, choose extract and enter 2875 at the same rate.
- Result: 2,500 net and 375 tax.
A quick check: 375 is half of 750, and 2,500 half of 5,000. The split is proportional because the rate is the same. If your figures are not proportional, you probably worked the deposit out from the net and then treated it as gross, or the other way round.
The second payment and beyond
The balance is also 2,875 and splits the same way into 2,500 and 375. If there are three or four instalments at different percentages, extract each one on its own. A 25% instalment of 1,437.5, for example, has a net of 1,250 and tax of 187.5. At the end, the tax across all payments should add up to 750. If rounding leaves it a cent out, adjust the last payment to close the account.
Receipt and invoice
When the deposit arrives you can issue a payment receipt with the Receipt generator for the 2,875 received. That tool records the amount only and does not split tax, so if you want the split shown, write it in the notes field. A receipt confirms a payment; it is not a tax invoice.
Whether tax is due when the deposit is received or on delivery, and whether you must issue an invoice for an advance payment, are rules that vary by country and are set by the tax authority. The calculator only splits the figures; your accountant settles the timing and the document. Set out the payment terms clearly in your quote with the Quotation generator, so the client knows from the start what they pay at each stage.
Common questions
The client paid a flat sum, say 2,000, not a percentage. How do I work it?
The same way: extract 2,000 at the applicable rate and record what remains of the gross total as a later payment.
Do I take the deposit from the net or the gross?
Take it as agreed with the client. If you agreed 50% of the tax-inclusive amount, work it from 5,750.