Module 43 · Core · 8 min read

Advance payments and how they are recovered

You will be able to: Split an advance receipt into net and VAT; Calculate the advance recovery on a bill with either basis; Explain how the last bill closes the advance.

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An advance is money the client pays before work is certified. In the UAE VAT treatment used by Zeyto it is a tax invoice on the day the money is received. You enter the gross amount received (VAT included) and press Issue advance tax invoice. The product takes VAT as 5/105 of the gross and credits the net to a customer advances account on the project.

The Advance Tax Invoices register listing advances received from clients with VAT.

Advance Tax Invoices: the advance is a tax invoice on the day it is received.

Advance Tax Invoices: the advance is a tax invoice on the day it is received.

For the running contract the advance is 10% of AED 1,000,000: net 100,000, VAT 5,000, received 105,000. VAT = 105,000 x 5 / 105 = 5,000. A control stops the cumulative net advances from passing the contract value.

Recovery on each bill

Each progress bill recovers the advance at the contract advance percent. The recovery cannot exceed the advance still held and cannot exceed the gross less retention of the bill. The VAT already declared on the advance is reversed pro rata, so the supply is declared once. If the contract sets the recovery basis to net of retention, the percent applies to the gross after retention.

BasisCalculation on bill 1Recovery
Gross (default)10% x 300,00030,000
Net of retention10% x (300,000 - 30,000)27,000
Two bills and the last oneAfter bill 1 (recovery 30,000) and bill 2 (recovery 32,000), AED 38,000 of the advance remains. VAT reversed so far is 3,100 (1,500 + 1,600). When the final bill arrives the recovery is whatever balance is left, so there is no rounding tail: in the final account example in lesson 6, 20,000 of net advance and 1,000 of VAT come back in the last invoice.
  • The advance tax invoice and the bill's tax invoice are two documents; together they declare VAT on the full supply once.
  • A guarantee reference can be typed on the advance record. Treat the bank guarantee itself, its value and expiry, as something you track outside this lesson's scope.
  • If the advance is not recovered by the final bill, the balance is a liability to the client and shows on the final account.
Watch outDo not recover advance on the retention part unless the contract says so. Choose the recovery basis on the contract carefully: on bill 1 above, the two bases differ by AED 3,000, which becomes a dispute at the next review.
TipKeep a running advance table by contract: received, recovered, balance. The Billing tab and the final account show the same three numbers.

Walk it through

  1. Split an advance receipt of AED 262,500 into net and VAT.
  2. Compute the recovery on a bill of AED 400,000 under both bases with 12% retention and a 10% advance.
  3. In the demo, find the advance tax invoice and the recovery column on a bill.
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Key takeaways
  • Advance VAT is 5/105 of the gross on the day of receipt.
  • Recovery is advance % of gross (or of gross less retention), limited by the balance.
  • The last bill recovers exactly what is left.

Check yourself

4 questions on this lesson. Not timed, not the exam, and you can try again. Score 60% or more, and read the lesson, to complete it.

1. VAT on an advance received of AED 105,000 (VAT included) is:

2. On bill 1, what is the advance recovery with a 10% advance, gross basis?

3. On the same bill with the basis net of retention, the recovery is:

4. Which are true about the advance in Zeyto Construction & Contracting?

Select all that apply.

Previous: Retention held and releasedNext: Variation orders, delay damages and deductions

Practice questions for this module · Printable study sheet