Has anyone dealt with receiving prepayments for customers in the UK and needing to apply VAT upon any receipt of payments? I have a client that needs to have some type of printed "invoice" for their customers' prepayments. They also say that by law in the UK they need to calculate VAT on any payment of goods or delivery of goods. To my knowledge, it is still an enhancement to charge tax on deposit payments. Is there a best practice here?

Part of the problem is that they want this "deposit" to hit a holding account (which native deposits would do), but they also want to be able to associate VAT on the deposit. To my knowledge, you cannot charge tax on a deposit, this would have to happen at the sales order/invoice level.