A reserve, a review, a closed account — whatever the label, the effect is the same: money you have earned is sitting somewhere you cannot reach. The instinct is that a tax bill cannot be due on money you haven't got. That instinct is wrong, and it is wrong on the return that falls first. Here is what actually applies, and the one part of it nobody has settled.
When a customer pays you through Stripe, two separate things happen and people tend to experience them as one. Your customer buys something and pays for it — that is the supply, and it is complete. Then, on its own schedule, Stripe moves money to your bank — that is the payout, and it is just a transfer of funds that were already yours.
A hold stops the second clock. It does not touch the first. Everything that follows in this guide is a consequence of that single fact, and most of the expensive mistakes come from assuming the two clocks are the same one.
Say you sold £10,000 in a quarter and Stripe has released £2,000 of it, holding the rest pending a review. You feel like a business that has taken £2,000. Your VAT return sees a business that made £10,000 of sales. (Figures illustrative.)
VAT is not accounted for when you get paid. It is accounted for in the period in which the tax pointfalls — HMRC's VAT guide puts it plainly: you must normally account for VAT in the tax period in which the tax point occurs. The basic tax point is when you issue a VAT invoice, and a payment received before an invoice is issued creates a tax point at that moment.
Read that against a Stripe hold and the answer falls out. Your customer paid. That created the tax point. What happens to the proceeds afterwards — whether Stripe forwards them on Tuesday, in ninety days, or contests them entirely — is a matter between you and Stripe. It does not reach backwards and unmake the tax point.
This is where people reach for the obvious escape hatch. If you are on the Cash Accounting Scheme, output VAT follows payment rather than invoices — so surely unpaid means unowed?
The scheme's own guidance closes it, in two places. Where an agent collects payment on your behalf, you account for VAT in the period your agent collects it from your customer — and on the full amount collected, not the reduced amount the agent credits to you. Separately, for card payments the scheme keys the date to when you create the sales voucher, expressly not when the card provider pays you.
Both rules point the same way: what matters is the collection, not the payout. The scheme that exists precisely to help businesses waiting on money is the one that most clearly says this particular wait does not count.
The next idea is usually bad debt relief — you have accounted for VAT on money you never received, and there is a relief for exactly that. But look at what the relief requires: the debt must have stayed unpaid for six months after the later of the date payment was due and the date of the supply, and the debt must not have been paid.
That last condition is the one that fails. Your customer did pay. You do not have an unpaid customer — you have an amount owed to you by a payment processor, which is a different animal wearing similar clothes. If the money is genuinely gone for good, the question becomes how to write off a debt in your accounts, and that is worth taking properly rather than filing on a hunch.
If you trade through a limited company, the position is settled and it is worth knowing before your accounts are drawn up. A company cannot use the cash basis, so its accounts are prepared on the accruals basis: the sale is recognised in the year it was made, and the held money appears on the balance sheet as a debtor rather than as cash. Your taxable profit reflects what you sold. It does not wait for the transfer.
The practical consequence is a set of accounts that will look wrong to anyone reading the bank statement, and right to anyone reading the ledger — turnover up, cash down, a receivable filling the gap. That is not a problem to be fixed; it is the correct picture. The problem is only ever a set of books built from the bank feed, which will quietly understate a year's turnover and leave a debtor nobody has recorded.
For sole traders and partnerships it is less clear-cut, and honesty is more useful here than confidence. Cash basis is now the standard method, and it records income when you receive money. Whether money held by a processor counts as received by you is not something HMRC's cash basis manual guidance addresses. With a material sum held across a year-end, that is a point to get confirmed rather than guessed — while the VAT position above stands either way.
Start by getting the number itself right. In Stripe, the balance and payout reports show what has been collected, what has been paid out and what is being held — the bank statement only ever shows the last of those, and it is the one that misleads. Book the sales gross, book the fees as an expense, and carry the held amount as a debtor. Then your VAT return is built from a figure that matches the rules rather than from the balance you happen to be able to see.
Then plan the cash separately from the tax. This is the part that actually hurts: a VAT liability falling due on sales whose proceeds you cannot reach is a cash-flow event, not an accounting one, and it is far easier to handle in advance than in the week the return is due. If a review is running, keep the correspondence — if the funds are eventually lost, the evidence of what happened and when is what any write-off will rest on.
Almost certainly yes, and that surprises people. VAT is accounted for in the period the tax point falls, and the tax point is set by the supply, the invoice or the customer's payment — not by the day the money lands in your bank. Your customer paid. The supply happened. Stripe holding the proceeds afterwards is a dispute between you and Stripe; it does not reach back and move the tax point.
This is the trap. The scheme does key output VAT to payment, but Notice 731 is explicit that where an agent collects payment on your behalf you account for VAT in the period your agent collects it from your customer — and on the full amount collected, not the reduced amount the agent passes on. It also says that for card payments the relevant date is when you create the sales voucher, not when the card provider pays you. Both point the same way: the collection is what counts, not the payout.
The conditions don't fit. VAT bad debt relief requires a debt that has stayed unpaid for six months after the later of the date payment was due and the date of supply — and crucially, that the debt has not been paid. Your customer did pay. What you have is not an unpaid customer; it is an amount owed to you by Stripe, which is a different thing and not what the relief addresses. If funds are ultimately lost for good, that is a question about writing off a debt in your accounts, and it is worth taking properly rather than assuming.
The sale still belongs to the year it was made. A limited company cannot use the cash basis, so its accounts are prepared on the accruals basis: the income is recognised when earned, and the money Stripe is holding sits on the balance sheet as a debtor rather than as cash. Your profit — and the Corporation Tax on it — reflects the sale, not the payout. A year-end that lands mid-hold is exactly when books built from bank statements fall apart.
Not necessarily, and this is the one genuinely open question here. Cash basis is now the standard method for sole traders and partnerships without corporate partners, and it records income when you receive money. Whether you are treated as having received money that a processor is holding is not spelled out in HMRC's cash basis manual guidance. Anyone in that position with a material sum held over a year-end should get the point confirmed rather than assume it either way — and the VAT position above is unaffected regardless.
There are two different things people call a hold. The ordinary one is the settlement schedule — for a UK account Stripe documents an initial wait of about 7 calendar days for the first payout, then roughly 3 business days. The other is a reserve, review or account closure, which has no published clock and is the situation people mean when they say their money is stuck. Treat the first as a timing item in your books and the second as a debtor that needs monitoring.
Send us your Stripe balance and payout reports and we'll tell you what your return actually has to show, what belongs on the balance sheet, and what the cash timing looks like — plainly, with no obligation.
Book a free call →General guidance, not advice for your specific situation — and the £10,000/£2,000 walk-through is illustrative, not quoted Stripe data. Last reviewed 02-08-2026.
We checked these rather than relying on memory. Every figure and deadline above comes from HMRC directly — go and read them yourself if you'd like to.
Last reviewed 02-08-2026. Tax rules change — if you're reading this long after that date, check the source.
