Share this content
0
14
5304

VAT Flat Rate - new build - landscaping

Client has undertaken landscaping works for a new build property and charged VAT on the whole job - so far.

Their client has now said that the work should have been zero rated and wants the VAT back.  Taken nearly 2 years to mention it and was happily accepting and paying quotes and invoices including VAT.

As far as I can see the majority of the work undertaken was not on the approved plans for the new build and would therefore not fall under the 'minimum that's required by the planning consent' or 'basic soft landscaping' works that can be zero rated.  Therefore most of the work should be standard rated.

Obviously we are looking to minimise the amout that should be repaid as under the VAT FRS my client loses out!

Can anyone see an issue with my logic or offer any guideance on further research / hmrc manuals?

Replies

Please login or register to join the discussion.

29th Mar 2012 15:32

How does your client lose out on the VAT?

Ok, so they will have to give 20/120 of their turnover back in respect of this job, but they will pay less VAT, so it's a softer blow.

That aside, I have to admit I haven't heard of a de-minimis to ZR landscaping, I thought it was SR regardless. 

#Edit#

Shows what I know!  "basic soft landscaping [can be ZR] - this means putting down top soil and laying grass - but only if this is required by the terms of the planning consent"

Has the customer not reclaimed this VAT already?  I wonder why, 2 years on, they are wanting it back from your client.

Thanks (1)
avatar
02nd Apr 2012 10:27

its not landscaping thats ZR its new build thats ZR

[quote=Constantly Confused]

Ok, so they will have to give 20/120 of their turnover back in respect of this job, but they will pay less VAT, so it's a softer blow.

That aside, I have to admit I haven't heard of a de-minimis to ZR landscaping, I thought it was SR regardless. 

#Edit#

Shows what I know!  "basic soft landscaping [can be ZR] - this means putting down top soil and laying grass - but only if this is required by the terms of the planning consent"

Has the customer not reclaimed this VAT already?  I wonder why, 2 years on, they are wanting it back from your client.

IF IT HAD BEEN A NEW BUILD IT WILL HAVE BEEN ZERO RATE.

YOUR CLIENT SEMS TO HAVE BEEN ABOVE BOARD BUT NOW THE CUSTOMER is arguing over spilt milk, maybe the customer is not vat registered like your client.

Thanks (1)
By Randify
30th Mar 2012 09:32

Flat Rate scheme is the main problem

Constantly confused

Thanks for your response.

The client looses because if he has to give back say £2,000 VAT to the end client (it is actually a lot more than this) he will only be able to reduce his output tax figure by £190 (2000*9.5%) under the flat rate scheme loosing £1,810.  The big problem with the flat rate scheme is that you pay over a percentage of your gross sales figure regardless of the rate that was charged to the end client 20% or 0%.  Also you cannot reclaim any input tax.

I think what has happened is the end client has tried to reclaim the VAT from HMRC (telling them that all the additional landscaping was part of the planned build) and HMRC have said that the work should have been zero rated.  I am sure that HMRC have not been given the correct information regarding the works required as part of the planning consent.

So far I think you have just confirmed my opinion that the majority of the work should have been standard rated.

Any further opinions greatly accepted.

Thanks (0)
30th Mar 2012 10:34

I see

I wasn't thinking it through, of course returning £2,000 would mean a tiny proportion is used as a VAT reducer.  Thank you for pointing that out to me!

I would assume if HMRC have refused a reclaim on the grounds of incorrectly charged VAT they would have done so in writing, stating the basis for the refusal, could you ask what the reason was?

Thanks (1)
By Randify
30th Mar 2012 12:06

I have seen the claim form

I have now seen the claim form and the claim made for the landscaping repayment was refused as according to the letter "should have been zero rated by the contractor". I don't agree btw.

This does on the face of it look like my client is going to loose some money!

However, according to HMRC website and as I mentioned earlier the hard landscaping (bulk of the work) does not qualify for zero rating and therefore should have been charged at standard rate.  This work is not soft landscaping but heavy stone work that was not part of the planning consent - its not shown anywhere on the drawings - but was added by the end client as it looks nicer!  HMRC does not realise that the works are not part of the plans.

I think this is going to get messy.

 

Thanks (0)
30th Mar 2012 14:57

Sorry

I'm afraid I was just filling in until someone who knows their VAT better turned up, but it seems to be just me and you...

Whose court is the ball in I wonder, your client has (in their opinion at least) charged the correct VAT.  Is it the customer who needs to prove no VAT was due, or your client who needs to prove it is due.  I'd say your client (you) should contact HMRC, but in response to what?  You were lucky to see the form detailing the 'reason', you can't write in response to a letter you didn't receive, and surely your client can't get HMRC to discuss another taypayer's affairs (this is, after all, the customer's problem, HMRC blocking the recovery).

 

Thanks (1)
30th Mar 2012 15:33

sufficient evidence

Your client needs to hold sufficient evidence to confirm that the job should be zero rated otherwise it's standard (leaving aside reduced rate issues). So if your client believe that, on your advice he is correct I'd say stick to your guns.

Thanks (1)
30th Mar 2012 16:07

But

Democratus wrote:

Your client needs to hold sufficient evidence to confirm that the job should be zero rated otherwise it's standard (leaving aside reduced rate issues). So if your client believe that, on your advice he is correct I'd say stick to your guns.

 

Where does it go from there (sorry, I don't mean to hijack your topic!)?  If HMRC told me I can't reclaim some VAT, get it back off the seller, and the seller says no chance, HMRC are wrong, what do I do?  I agree that if the seller is confident they are in the right (which it sounds like they are) they should have nothing to fear, but disputes like this can be awkward and ideally should be resolved with minimal fuss.

Thanks (1)
03rd Apr 2012 09:19

What the duck! Hijacking

It's a fair point, but I'd argue that the evidence i am holding is insufficient to zero rate. There may be some element which definitely is 0% but that's as it may be.

It's just a matter of being pugnatious.

This isn't really helpful but probably accurate.

Rgds

Thanks (1)
avatar
31st Mar 2012 08:34

HMRC Shorthand?

Is it a self-build repayment claim that your client's customer had made to HMRC?

If so, I wonder if the comment:

"should have been zero rated by the contractor".

was not actually expressing an opinion on the rate but was shorthand for something along the lines of:

"You can't claim the VAT back here. You can only claim for materials. This is a clearly an invoice for services. If it should have been zero-rated you need to sort that out with the contractor; it's nothing to do with us as we clearly state on the claim form and if I had my way I'd be seeking a penalty for a fraudulent claim because you were clearly trying to sneak this one through and hoping we wouldn't notice. But as I'm overworked with a backlog of these to clear I've haven't got time to go into all this" ?

David

Thanks (1)
avatar
02nd Apr 2012 10:35

self-only recliam vat onmaterials-new build reclaimthe whole lot

[quote=David Massey]

Is it a self-build repayment claim that your client's customer had made to HMRC?

If so, I wonder if the comment:

"should have been zero rated by the contractor".

was not actually expressing an opinion on the rate but was shorthand for something along the lines of:

"You can't claim the VAT back here. You can only claim for materials. This is a clearly an invoice for services. If it should have been zero-rated you need to sort that out with the contractor; it's nothing to do with us as we clearly state on the claim form and if I had my way I'd be seeking a penalty for a fraudulent claim because you were clearly trying to sneak this one through and hoping we wouldn't notice. But as I'm overworked with a backlog of these to clear I've haven't got time to go into all this" ?

Maybe the customer thought it would be classified as self build(rather than new build)(and self build means you dont have to be trading and vat registered)(self build has more scope too) but the claim was then refused by the local office so the customer has queried whether it should have been standard rated, after the self build claim was refused.

Thanks (1)
avatar
31st Mar 2012 18:32

See VAT Notice 708 Para 3.3.4 B---ZR only applies to soft landscaping as stated above or work done in connection with the building.So the hard landscaping would need to consist of a retaining wall to support the garden.

Presumably,the work was done before the certificate of completion was issued.

If the hard landscaping is of ornamental value only it is SR.

Perhaps,your clients client should contact their VAT advisor if they have one!

 

 

 

 

Thanks (1)
avatar
02nd Apr 2012 10:15

My Tuppence worth

There's nothing to stop the client approaching HMRC for a ruling. It's the clients responsibility to charge and pay the correct tax, if one party has a 'ruling' that says the service is ZR but the other is convinced (quite rightly in my opinion) that the majority is SR then they can get it clarified by HMRC.

They'd need to put in the letter that they're only writing because HMRC have given out contrary information, so they don't get the "it's in our notices, look it up yourself" ruling that HMRC are so keen on these days.

As a previous respondent has said you'll probably find that the note that HMRC sent out was just a lazy response meaning 'we know we don't have to pay it so take it up with the builder if you want to hassle someone, I cant be bothered to write a full reply'. Alternatively it may have meant 'we don't have to repay this, so I'll just asume that it should've been zero rated because that's what normally happens'.

Anyway, my advice would be present the full facts to HMRC, tell them they've caused some confusion, and get them to sort it out. In terms of what happens now?, it's up to the client if they stand firm on the SR nature of the works, then it would be up to the householder to go to court to get the money back, which would mean them demonstrating that the works should have been fully ZR. If they don't stand firm then they've just made a loss under FRS.

As you say it's likely to get messy, because the householder may have now been disabused of the notion that they can get all the VAT back, and they're likely to take it out on both the client and HMRC whatever happens.

Thanks (1)
By Randify
04th Apr 2012 07:34

Thanks to you all

Thank you all for your input.

Having now seen the plans and pictures of the finished job, I KNOW that 80% of the work is nothing like 'soft landscaping or the basic landscaping required for the planning consent'. I am writing to our client and our client is writing to HMRC (via us - lets see how long this response takes!).

Again thank you all for your comments - when you sit on your own you can sometimes doubt your own interpretations!

Andy

Thanks (0)