Psalm/How to invoice a deposit
A guide for UK trades · Updated 5 October 2026
Invoice a deposit as an invoice of its own that says what it is for, the full price of the job and what is left to pay, then send a final invoice for the whole job that shows the deposit already received. If you are VAT registered, the VAT on a deposit is due when you receive it or when you issue a VAT invoice for it, whichever is first.
The proforma and invoice generators are free, need no account, and nothing you type leaves your device.
What goes on it
A deposit invoice is an ordinary invoice for part of the price, so it carries what any invoice carries: a unique number, your name, address and contact details, the customer's name and address, a clear description of what is charged, the date of the invoice, the amount and the total owed. That list is gov.uk's, from its invoicing guidance read on 5 October 2026. A sole trader also shows their own name beside any business name.
A VAT invoice carries more, and one of the extra items is the time of the supply, the tax point: for a deposit, the rule below sets it. HMRC's VAT Notice 700 (paragraph 16.3), read on 5 October 2026, also asks for your VAT registration number, the VAT rate and the amount payable excluding VAT for each description, and the total VAT in pounds.
Three more lines make a deposit invoice easy to follow, though no rule asks for them. Say what the deposit is for and which quote it belongs to, show the full price of the job, and show what is left to pay.
A worked example
Whitmore Interiors, a VAT registered firm in London, has quoted Charlotte Hayes £3,000.00 with VAT for an oak worktop. She accepts, and the firm asks for 30% of the total with VAT as a deposit, which is £900.00. The VAT inside it is one sixth, £150.00, because VAT at 20% is 20 parts in 120. Everything below is invented.
| The deposit invoice, D-0031 | Amount |
|---|---|
| Deposit: 30% of quotation Q-0014 for the oak worktop at 12 Alder Road | £750.00 |
| VAT at 20% | £150.00 |
| Total of this invoice, due on receipt | £900.00 |
| Full price of the job with VAT | £3,000.00 |
| Still to pay on completion | £2,100.00 |
Invented firm, invented customer, invented figures. The deposit is 30% of the total with VAT.
When the work is finished, the final invoice lists the whole job, shows the deposit already received and asks for the balance.
| The final invoice, I-0042 | Amount |
|---|---|
| Remove and dispose of the old worktop | £150.00 |
| Solid oak worktop (3.6 m × £320.00 per metre) | £1,152.00 |
| Template, cut, fit and oil, with sink and hob cut-outs | £780.00 |
| Oak upstand (3.6 m × £42.50 per metre) | £153.00 |
| Disconnect and reconnect the sink and hob | £265.00 |
| Total before VAT | £2,500.00 |
| VAT at 20% | £500.00 |
| Total | £3,000.00 |
| Less deposit already received (invoice D-0031, including £150.00 VAT) | minus £900.00 |
| Balance due | £2,100.00 |
Both invoices carry their own number and date. Nothing is charged twice: the balance is the total less the deposit.
The firm accounts for the VAT in two steps, not one, because each payment has its own tax point.
| VAT on the job | Goes on the VAT return for the period in which the tax point falls | VAT |
|---|---|---|
| The deposit | When you receive it, or when you issue a VAT invoice for it, whichever is first | £150.00 |
| The balance | At the tax point of the rest: normally when the work is finished, or earlier if you invoice or are paid first | £350.00 |
| The whole job | £500.00 |
£150.00 + £350.00 = £500.00. The VAT in each step is worked out from the amount invoiced or received in that step.
The VAT rule
If you are VAT registered, yes, and it is due early. gov.uk's guidance on VAT for instalments, deposits and credit sales, read on 5 October 2026, says the tax point for an advance payment or deposit is the date you issue a VAT invoice for it or the date you receive it, whichever happens first, and that you include the VAT in your return for the period in which that date falls. HMRC's VAT Notice 700 (paragraphs 14.2.2 and 14.2.3), read the same day, says most deposits serve as advance payments and create a tax point when you receive them.
If the customer then pays the balance before the work is done, that creates a further tax point, and otherwise the tax point of the balance is normally the day the work is finished (paragraph 14.2.1). The same guidance treats a deposit you keep when the customer does not go ahead as still carrying VAT: VAT is due on money you have received, and if you refund it you can reclaim the VAT you accounted for in your next return (paragraph 8.13.1).
A returnable security deposit, such as one taken on hired goods that is either refunded in full or kept to cover loss or damage, does not create a tax point. A deposit that is part of the price of work you will do is not that kind. If you are not VAT registered, there is no VAT on any of it, and your deposit invoice shows no VAT and no VAT number. This is general guidance, not tax advice, and an accountant can confirm it for your firm.
Two ways to ask
Both ask the customer for the deposit. The difference is what each is for VAT. HMRC's VAT Notice 700 (paragraph 17.3), read on 5 October 2026, describes a pro-forma invoice as an offer of goods or services that will not be supplied unless payment is received, says it cannot be used to reclaim VAT even if it shows every VAT invoice detail, and says that if you then supply or are paid you must issue a proper VAT invoice. Paragraph 16.2.3 sets the usual limit for that invoice at 30 days from the tax point.
If you are VAT registered, the simplest habit is to send the deposit as a VAT invoice and be done. A proforma suits a customer who wants to see the full figures first, or an order you will only start once the money is in.
| Compare | A deposit invoice | A proforma invoice |
|---|---|---|
| What it is | A VAT invoice for part of the price | An offer to supply once payment arrives, set out as an invoice |
| Is it a VAT invoice? | Yes, if it carries the VAT invoice details | No. HMRC asks you to mark it “this is not a VAT invoice” |
| When does the VAT fall due? | On the earlier of the date you issue it and the date the deposit arrives | When the deposit arrives, because a proforma is not a VAT invoice |
| What do you issue after payment? | Nothing more for the deposit, and a final invoice at the end | A proper VAT invoice, normally within 30 days of the tax point |
How much
No rule sets a figure. gov.uk says you can set your own payment terms, including payment upfront. What the customer can be held to is a separate question. gov.uk's guidance on writing a fair contract for customers, updated 22 July 2026 and read on 5 October 2026, says a term is unlikely to be fair if it makes prepayments non-refundable whatever the reason the customer cancels. It says you may legitimately keep a deposit in full if it is no more than a small percentage of the price and you make clear when exactly it would be non-refundable, and that any deposit you keep must take into account what you will actually lose.
In practice, take enough to book your days or to cover the goods you must order, say in plain words when it is refundable, and put it on the quote. If the customer accepts at their home, the 14 day right to cancel applies first (see the bathroom guide). Whether a quote binds the customer is covered in is a quote legally binding.
More than one payment
The same rule applies to each payment. HMRC's paragraph 14.2.2 gives the tax point for the amount you invoice or receive, so a payment taken when the first fix is complete has its own tax point, with the VAT inside that payment going on the return for that period. Treat each stage as its own invoice with its own number, showing the stage, the share of the price, the VAT in it and what is left. The bathroom guide and the kitchen template show stage payment schedules worked out on a quote.
Questions people ask
Issue an invoice of its own for the deposit, with its own number and date, saying what it is for, which quote it belongs to, the full price and what is left to pay. When the work is finished, send a final invoice for the whole job that shows the deposit already received and asks for the balance.
If you are VAT registered, yes. VAT is due on a deposit that is part of the price of goods or services you will supply. If you are not registered, add no VAT and show no VAT number. This is general guidance, not tax advice.
On the earlier of the date you issue a VAT invoice for the deposit and the date you receive it. You include the VAT in your return for the period in which that date falls (gov.uk, VAT: instalments, deposits, credit sales, read on 5 October 2026).
No. A deposit invoice can be a VAT invoice. A proforma is an offer to supply once payment is received, and HMRC says it is not a VAT invoice. After a proforma is paid you issue a proper VAT invoice, normally within 30 days of the tax point.
Sometimes. gov.uk says you may legitimately keep a deposit in full if it is no more than a small percentage of the price and you made clear when it becomes non-refundable, but a term making prepayments non-refundable whatever the reason is unlikely to be fair. VAT remains due on money you keep. It is not legal advice.
List the whole job and its VAT, then show the deposit already received as a deduction, quoting the deposit invoice number, and ask for the balance. The free invoice generator has an Already paid box that does this.
HMRC's VAT Notice 700 (paragraph 16.2.1) says you do not need to issue VAT invoices to customers who are not VAT registered, and that in practice you will issue one to anyone who asks. Either way, give the customer the deposit amount and what it is for in writing.
Ask for it properly
Three free tools cover it, with no account, and nothing you type leaves your device. The proforma invoice generator asks for the full amount or a deposit before you start and marks the page as not a VAT invoice when you are VAT registered. The invoice generator makes the final invoice, with an Already paid box for the deposit. The receipt generator confirms the deposit when it arrives. To keep every quote, deposit and invoice for a job in one place, Psalm for kitchen fitters starts at £39 a month for three people.
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