VAT on a progress claim: before the deductions, or after.
A claim takes off the advance and the retention. Whether VAT is worked out before or after those deductions changes the invoice, the return and what you chase later. Both ways are consistent. Mixing them is not.
9 minute read · Updated 20 October 2026 · Practical guidance, not tax advice: confirm anything that matters for your business with your tax agent or the Federal Tax Authority.
Pick one method for an invoice, and apply it to every deduction.
Every deduction on the invoice follows the method you choose: the advance recovery, the retention, earlier progress payments, a discount, and any deduction you name yourself.
With small numbers: a claim of 100 with a 30% advance and 10% retention is 63 payable either way. Before VAT, 100 − 30 − 10 = 60, plus VAT of 3. After VAT, 100 + 5 = 105, less 31.5 and 10.5.
| Before VAT | After VAT | |
|---|---|---|
| Order | Gross − deductions = net, then VAT on the net | VAT on the gross first, then deductions off the VAT-inclusive total |
| A % deduction | % of the ex-VAT gross | % of the VAT-inclusive total |
| A fixed amount | Taken as an ex-VAT amount | Taken as a VAT-inclusive amount |
| An earlier invoice deducted | At its net value (received 105, deduct 100) | Including its VAT (10 net deducted as 10.5) |
A mixed claim matches neither method.
A common mix takes the advance off before VAT but leaves the retention inside the VAT base. It looks reasonable on one invoice, but it produces a third set of figures: the invoice no longer agrees with either method, so it stops agreeing with the certificate and with what the main contractor expects to pay.
| Method | VAT on the claim | Payable |
|---|---|---|
| Before VAT | 9,000.00 | 189,000.00 |
| After VAT | 10,500.00 | 189,000.00 |
| Mixed: advance before, retention after (wrong) | 10,500.00 | 190,500.00 |
With fixed amounts, the two methods give different payables.
With percentages the two methods happen to give the same payable. With fixed amounts they do not, and they should not be forced to.
Take a 1,000,000 claim with a fixed 300,000 advance and a fixed 100,000 retention. Before VAT the fixed amounts are ex-VAT; after VAT they are VAT-inclusive.
| Line | Before VAT | After VAT |
|---|---|---|
| Gross | 1,000,000.00 | 1,000,000.00 |
| VAT on the gross | — | 50,000.00 |
| Less advance | −300,000.00 | −300,000.00 |
| Less retention | −100,000.00 | −100,000.00 |
| VAT on the net | 30,000.00 | — |
| Payable | 630,000.00 | 650,000.00 |
Across a whole contract, both methods end in the same place.
Contract 1,000,000 ex-VAT, VAT 5%, a 30% advance, 10% retention, and the work billed 30% / 40% / 30%. Both methods bill exactly 1,000,000 and declare exactly 50,000 of VAT, each fil once. The advance and the retention accounts end at zero, and a fourth claim is refused because the contract is fully billed.
| Document | Calculation | VAT declared | Payable |
|---|---|---|---|
| Advance tax invoice | 300,000 + VAT | 15,000.00 | 315,000.00 |
| Claim 1 | 300,000 − 90,000 − 30,000 = 180,000, + VAT | 9,000.00 | 189,000.00 |
| Claim 2 | 400,000 − 120,000 − 40,000 = 240,000, + VAT | 12,000.00 | 252,000.00 |
| Claim 3 | 300,000 − 90,000 − 30,000 = 180,000, + VAT | 9,000.00 | 189,000.00 |
| Retention release | 100,000 + VAT | 5,000.00 | 105,000.00 |
| Total | Net 1,000,000 | 50,000.00 | 1,050,000.00 |
| Document | Calculation | VAT declared | Payable |
|---|---|---|---|
| Advance tax invoice | 300,000 + VAT | 15,000.00 | 315,000.00 |
| Claim 1 | 315,000 − 94,500 advance − 31,500 retention | 10,500.00 | 189,000.00 |
| Claim 2 | 420,000 − 126,000 − 42,000 | 14,000.00 | 252,000.00 |
| Claim 3 | 315,000 − 94,500 − 31,500 | 10,500.00 | 189,000.00 |
| Retention release | 105,000, VAT already declared | 0.00 | 105,000.00 |
| Total | Net 1,000,000 | 50,000.00 | 1,050,000.00 |
After VAT, a claim declares the VAT on its gross less the VAT already declared on the advance it deducts: on claim 1, 15,000 − 4,500 = 10,500.
A penalty reduces the taxable value under both methods.
A deduction you name yourself, such as a delay penalty or a backcharge, is not like retention: it reduces the contract value, so it reduces the taxable value under both methods and carries no VAT at any later point.
On a 1,000,000 contract with a 10% penalty the supply is 900,000 with 45,000 of VAT, either way.
| Line | Before VAT | After VAT |
|---|---|---|
| Contract | 1,000,000.00 | 1,000,000.00 |
| VAT on the contract | — | 50,000.00 |
| Less penalty | −100,000.00 | −105,000.00 |
| VAT on the net | 45,000.00 | — |
| Total | 945,000.00 | 945,000.00 |
After VAT, the VAT payable on the invoice is 45,000, not 50,000: the 5,000 inside the penalty is not charged.
On the invoice, the VAT line is 5% of the figure directly above it.
Deductions print in the order the VAT was worked out. Before VAT, the deductions come first and VAT is 5% of the taxable amount. After VAT, the tax block foots on its own: VAT on the gross, less the VAT already declared on the advance tax invoice, gives the VAT payable on this invoice, the figure that goes in the return.
In Mizarah the method is a company setting (Deductions and VAT; before VAT unless you change it), and each invoice applies it to every deduction, prints in this order, and keeps the VAT return equal to the VAT control account.
| Line | Amount |
|---|---|
| Total before VAT | 30,000.00 |
| VAT (5%) on 30,000.00 | 1,500.00 |
| Less: VAT already declared on the advance tax invoice | −450.00 |
| VAT payable on this invoice | 1,050.00 |
| Total including VAT | 31,500.00 |
| Less: Advance payment (30%) | −9,450.00 |
| Less: Retention (10%) | −3,150.00 |
| Total | 18,900.00 |
Common questions.
- Which method should I use?
- Both are consistent ways to bill a contract. Follow your contract and what your main contractor certifies, and confirm the choice with your tax agent. What matters is using one method for every deduction on an invoice.
- Why do the two methods give different payables?
- With percentage deductions they give the same payable. With fixed amounts they do not, because a fixed amount is ex-VAT under one method and VAT-inclusive under the other. Both results are correct for their method.
- Does the method change the total VAT on the contract?
- No. Across the advance, the claims and the retention release, a contract declares exactly 5% of its value, each fil once, under either method.
- What VAT goes in the return for an after-VAT claim?
- The VAT on the claim's gross less the VAT already declared on the advance it deducts. On claim 1 of the 1,000,000 example that is 15,000 − 4,500 = 10,500.
Read next: Retention on UAE fit-out contracts · The advance tax invoice · Billing for MEP subcontractors
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