How to invoice for a deposit

Raise a separate numbered invoice for the deposit, then show it as already paid on the final invoice so the balance is obvious.

The deposit is real income on the day you receive it, so it needs its own document — not a note on a future invoice.

The clean sequence: invoice 1044 for the 40% deposit, client pays, work happens, invoice 1045 for the full job showing "less deposit paid on invoice 1044" and the remaining balance due.

Doing it this way means the client can see exactly what they have paid and what is left, and your records show both events on the dates they happened.

The sequence, in order

1. Quote the whole job, stating the deposit and when it is due.
2. Issue a deposit invoice once they accept — its own number, from your normal sequence, for the deposit amount.
3. Do the work when it clears.
4. Issue the final invoice for the full job value, with the deposit shown as a deduction, leaving the balance due.

Four documents, each with a job, and a customer who can see at every stage what the total is and what is left.

What the final invoice should look like

Rewire, per estimate EST-0104 — £3,840.00
Less deposit paid 2 September (INV-0039) — −£1,200.00
Balance due — £2,640.00

The alternative — invoicing only £2,640 with no mention of the deposit — is the common mistake. The customer's records then hold two unrelated documents totalling the job with nothing connecting them, and in a year nobody can reconstruct what the work cost.

Deposit invoice or proforma?

Both are used, and the difference is the tax point. A deposit invoice is a real invoice: it enters your sequence and, if you are registered, the tax on it is due in that period. A proforma creates no tax point, but receiving the payment usually does — so you then have to issue a real invoice anyway, dated at the payment.

For most small businesses the deposit invoice is simpler: one document, one tax point, no second step to forget. Use a proforma where the customer's system specifically requires something to raise a purchase order against. Proforma invoices covers when that applies.

Tax on a deposit

In most GST and VAT systems, receiving a deposit creates a tax point for the amount received, which means tax is due on it in that period rather than when the job finishes. A £1,200 deposit at 20% is £1,000 plus £200 of VAT, not £1,200 of work.

The error to avoid is treating the deposit as tax-free and then charging tax on the full value at the end — that charges tax twice on the same money. Charge tax on the deposit, then on the balance, and the totals reconcile.

Stage payments are the same pattern

On longer work, replace one deposit with several staged invoices against named milestones — "stage 2 of 4, foundations complete and signed off". Each is a real invoice with its own number and its own due date. Name the stage rather than numbering it blindly: "second payment" means nothing to a customer six weeks later, and it is the phrasing that most often stalls a construction payment.

Record the payment against the invoice

When the deposit arrives, mark it paid against that invoice rather than noting it separately. Otherwise the deposit invoice sits in your outstanding list forever, your unpaid total is wrong, and reminders go out for money you already have — which is the most embarrassing kind of chasing there is.

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