Deposit and final invoices: how to bill a deposit and the balance

Why take a deposit

Deposits are normal for custom work, events, building jobs, design projects and anything where you buy materials up front. Typical amounts are 25% to 50%. A deposit:

• confirms the customer is committed;
• pays for materials or blocked-out time;
• reduces the amount at risk if the customer disappears.

Write the deposit, what it covers and whether it is refundable into your quote or contract before you invoice it. Your payment terms are the place for this.

What a deposit invoice should show

A deposit invoice is a full invoice in its own right, with its own number in your normal sequence. Include:

• the title “Deposit invoice” or “Advance payment invoice”;
• a reference to the quote, order or contract, for example “30% deposit on quote Q-2026-041”;
• the total contract value, so the customer sees the bigger picture;
• the deposit amount, the VAT rate and VAT on the deposit;
• the due date and payment details.

The deposit invoice template has this layout ready to fill in.

VAT on deposits in the UK

HMRC’s VAT guide (Notice 700, paragraph 14.2.2) says that if you receive a payment or issue a VAT invoice before the basic tax point, that earlier date becomes the tax point for the amount received or invoiced. Paragraph 14.2.3 adds that most deposits are advance payments and create a tax point when received.

So if you are VAT-registered and take a £1,500 deposit for a standard-rated job, VAT is due on it in the return covering the date you received it, even if the work is finished months later.

Two exceptions from the same paragraph: a security deposit that is refunded when hired goods come back safely is not payment for a supply and creates no tax point, and a deposit held by a stakeholder creates no tax point until it is released to the seller.

If the customer cancels and you keep the deposit, check the guide before adjusting your VAT. HMRC treats retained deposits for supplies the customer does not take up as still subject to VAT.

VAT on advance payments in the EU

The EU VAT Directive sets the same basic rule. Under Article 65, where a payment on account is made before the goods or services are supplied, VAT becomes chargeable on receipt of the payment, on the amount received. Member states then add their own invoicing details. A few you will meet:

• Germany: an Anzahlungsrechnung is common, and the final invoice (Schlussrechnung) must deduct the advance payments and the VAT on them.
• France: for goods, VAT is generally due on delivery rather than on a deposit; for services, it is generally due on payment, including advances.
• Cross-border B2B: for intra-EU supplies of goods, the advance payment rules differ, so check before charging VAT.

The rule of thumb: if you are VAT-registered and your country taxes advances, show VAT on the deposit invoice and declare it in that period.

What the final invoice should show

The final invoice describes the whole supply and then subtracts what has already been invoiced and paid. That way the VAT for the whole job is correct and none is counted twice. Show:

1. the full net price of the work and the VAT on it;
2. a line for each deposit received, with its invoice number, date, net amount and VAT;
3. the balance still due, net, VAT and gross.

Ready layout: final invoice template.

Worked example: a £5,000 project

A designer agrees a £5,000 + VAT website project, 30% deposit up front. VAT 20%.

Deposit invoice INV-2026-090, 1 September 2026:

• 30% deposit on £5,000: £1,500.00
• VAT 20%: £300.00
• Total due: £1,800.00

Final invoice INV-2026-131, 30 October 2026:

In your VAT returns: £300 output VAT in the period containing 1 September, £700 in the period containing 30 October. £1,000 in total, as it should be.

Several stage payments

Longer projects often have more than one advance: a deposit at signing, a stage payment at a milestone and the balance on completion. The method stays the same.

• Each stage gets its own invoice, number and VAT, with VAT accounted for when each payment is received or invoiced, whichever comes first.
• Each stage invoice should mention the contract value and what has been invoiced so far, for example “Stage 2 of 3: 40% of £12,000. Previously invoiced: £3,600 net.”
• The final invoice lists the full contract value and deducts every earlier invoice, each with its number, date, net amount and VAT.

Example: £12,000 net, 30% deposit (£3,600), 40% at design sign-off (£4,800), balance on launch. The final invoice shows £12,000 net and £2,400 VAT, less £3,600 + £720 and £4,800 + £960, leaving £3,600 net + £720 VAT = £4,320 due.

If the scope grows during the project, update the contract value on the next invoice and explain the change in a line or two, so the deductions still add up.

Common mistakes

• Charging VAT on the full price again. If the final invoice bills £6,000 without deducting the deposit VAT, you over-declare £300.
• A “receipt” instead of an invoice for the deposit. Your VAT-registered customer needs a VAT invoice to reclaim VAT on the deposit.
• Forgetting the reference. Quote the deposit invoice number on the final invoice, so both sides can reconcile.
• Not agreeing refund terms. Say in the contract whether the deposit is refundable if the customer cancels.

Doing it in Invoiceferry

Set the title to “Deposit invoice”, add one line for the deposit and choose the VAT rate. The editor does not accept negative lines, so on the final invoice bill the balance as the line amount and set out the full price and deposit deduction in the notes, as in the table above, quoting the deposit invoice number. The dashboard at /documents/ tracks which invoices are still unpaid. If plans change and you refund part of a deposit, use a credit note.

Related tools and articles

• Credit note vs debit note: what is the difference?Credit note vs debit note: what each one is, when to issue it, what to include, and how UK and EU VAT rules expect you to reference the original invoice.
• Deposit invoiceAsk for part of the price before you order materials or block the date.
• Final invoiceClose out the job with one clear document: what the whole project cost, what has already been paid, and the balance left to pay.