I work as a Finance Manager in a healthcare company which is not required to be registered for VAT as all turnover falls within the exempt category. We have recently received notification from a supplier that they have charged the incorrect VAT rate on invoices for several years only using 17.5% rather than 20%. They have now re-issued old invoices at the correct VAT rate and are asking to be paid the difference which amounts to just over £4,000. As we are not VAT registered we will not be able to reclaim the additional VAT in the normal way.
The invoices are recorded gross in our company's accounting software as no VAT is reclaimable, hence why this incorrect rate was never picked up.
Is my company liable for this additional VAT? I have trawled various sites and can find nothing definitive. HMRC's internal manual on VAT assessments and Error Correction is vague stating:
'When traders have undercharged tax on invoices to customers, they may account for the tax by issuing amended or supplementary invoices or pay the tax from their own resources. It is for traders to decide which course to take.'
Does anyone else have any experience with this?
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Replies (2)
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Look to the contract...
This is a matter of contract law rather than VAT guidance.
So what you need to look at is what you signed up for, have you agreed to pay a price plus VAT at the prevailing rate, in which case they could possibly argue that they're entitled to the extra since you haven't paid what the contract states. Or have you just agreed a price which you've then paid, in which case you've met your contract obligations and they can't come back for more. Or is the contract more complex that that, or less complex than that in that there isn't a formal contract sitting around?
I'm afraid it comes down to - you probably need to talk to a legal professional rather than an accountant.
As above
Will depend on the contract - but, having seen this from the other side, I believe that you would be in a strong position if you chose to dig your heels in - even if the contract is against you