Client's software 'update' has thrown everything out!

Client's software 'update' has thrown...

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I have a client who runs a service business and earlier this year the company's software system was updated - after looking at recent reports it seems that the software somehow changed the default VAT rate from 20% back to 15% on the day the update was run - so subsequent commission/VAT reports have been incorrect.

I don't suppose anyone else has had experience of this kind of situation and whether we could claim any form of compensation from the software provider?

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By paul.k2
17th Aug 2011 21:10

I doubt it

I don't know if it would ever stand up, but software licences are that, a licence to use. You do not own your software and that is how the software houses have tried to limit their liability.

At least that was what they taught me in the software houses I worked for.

They will undoubtedly counter with your acceptance testing and if you fulfilled your obligations to maintain your system.

Unless you can show that they took responsibility for the update or didn't advise you to do some checking, I suspect you would have to show some general form of negligence or lack of professionalism. If they released the software with a fundamental bug in it, then you might be able to argue that they missed a basic check, but I think the only people who will benefit from this are the lawyers.

You might like to try BASDA to see if they can offer a suggestion, although they are a trade body. The BCS also has some expert services that you might be able to use.

Regardles of what your provider does, you really should check all of your main processses after an upgrade.

On a lighter note, we used to say that an update was a way of re-introducing a bug into an otherwise working system :-)

 

Paul

www.kellysolutions.co.uk

 

 

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By jaybee661
17th Aug 2011 21:17

... thanks Paul...

... really appreciate the advice, but I guess under normal circumstances you wouldn't expect someone running a service business to check deep within the 'setup' of the program to check the VAT rates hadn't been deleted!

... not sure where we go from here but I think my client will want to take it further...

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By paul.k2
17th Aug 2011 21:41

Resolution

JB They will argue that your client should have at least spot checked some invoices. Hence my comment about making lawyers rich.

It might be worthwhile seeing if the suppliers contracts contain a dispute resolution clause. The BCS offers such a  service and quite a few IT companies will build it into their contracts. I don't think it is binding, but it might be more efficient to try resolution first.

Good luck

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By 3569787
03rd May 2016 18:05

Maximum - cost of software

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Euan's picture
By Euan MacLennan
18th Aug 2011 10:21

What financial loss has been incurred?

"so subsequent commission/VAT reports have been incorrect"

How has this caused the client a loss which cannot be rectified?  You can correct an error of up to £10,000 on VAT on the next return or submit a voluntary disclosure form VAT 652.  I am not sure how the incorrect reports would have been used for commission.  Are you saying that excessive sales commission has been paid?

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By jaybee661
18th Aug 2011 22:06

... yes, indeed...

... yes, Euan, the employees' commission has been paid on the net figures from the computer system, which has obviously been overstated?

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By User deleted
18th Aug 2011 23:56

Just chipping in ...

... if a software licence is a licence to use, then surely there is an obligation for it to do what you are being licenced for it to be used for?

By no means a legal expert, but is there not an obligation to be fit for purpose, so if an update has the wrong VAT rate, that would be the providers problem. It would not be unreasonable to expect a software update from a specialist provider to have the current VAT rate as default.

Traders cannot contract out of their statutory obligations, there is legilation against unfair contract terms, this is a good starting point:

http://www.bis.gov.uk/files/file25486.pdf

As Euan says however, the error should be able to be easily rectified, but you may wish to claim compensation for the time / stationery / postage etc. spent so doing!

Is not net commission based on net sales? If so VAT would have no effect? (or are net sales calculated from gross takings?)

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By jaybee661
19th Aug 2011 06:51

... thanks OGA...

... again, much appreciated - yes, the commission is based on net sales which are calculated from gross takings, obviously therefore the net figures are wrong on the system?

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Euan's picture
By Euan MacLennan
19th Aug 2011 11:49

So, claw back the overpaid commission

 ... from the employees.  You might lose out if an employee has left in the meantime, but otherwise, there will be no overall loss.

I have to say that I am astonished that the under-reporting of VAT did not come to light on the first VAT return after the upgrade.  Don't people do the rudimentary check which HMRC's system does, to compare 20% of the net outputs in Box 6 with the output VAT in Box 1?  The VAT return must have been showing output VAT of only 13% of outputs, instead of 20%, which should have rung alarm bells unless, perhaps, there are a lot of exports or zero-rated items in the sales.

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By jaybee661
19th Aug 2011 12:57

... the VAT return is done on a different basis...

... and is totally correct, it is only the commission that's wrong.

I just think my client is worried about a bad reaction from the staff when they try to claw back the overpaid commission!

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