Tax point
The tax point is the date on which a VAT liability arises for a UK transaction — either when goods are delivered or services are performed (basic tax point) or when an invoice is raised or payment received, whichever comes first (actual tax point).
The tax point determines which VAT period a transaction falls into. HMRC distinguishes two types: the basic tax point, which is the date goods are physically delivered or a service is completed, and the actual tax point, which overrides it when an invoice is issued or payment is received before or shortly after that date. For most invoiced sales, raising the invoice within 14 days of delivery moves the tax point to the invoice date — meaning that is the date Xero should carry on the transaction.
Why it matters for VAT returns and month-end
Getting the tax point right affects which quarter a sale or purchase lands in on your VAT return. A £12,000 project completed on 28 March but invoiced on 4 April sits in the April–June quarter, not the January–March one, if the invoice falls outside the 14-day window. Posting it to the wrong period overstates one quarter’s output VAT and understates another’s, requiring a correction on a future return.
In Xero, the invoice date drives the VAT period automatically. Checking that invoice dates reflect the correct tax point — rather than the date you happened to enter them — is a routine part of month-end close, particularly for project-based businesses where work completion and invoicing regularly straddle quarter boundaries.