VAT - reduced rate

VAT - reduced rate

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A client is developing a non-residential building into flats and the building works will qualify for the reduced VAT rate of 5%. However the utility companies, whilst apparently agreeing the 5% rate, say they have to issue invoices for connection with the standard rate of VAT. The water company have said that in spite of this they will accept payment of the reduced rate, whereas the electricity company will not. Has anyone come across this? Where does it leave the client?
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By theaardvark
03rd Nov 2004 15:17

The services are reduced rate services.
Assuming all other conditions for reduced rate supplies are met, services qualifying for the reduced rate include:

"Carrying out work within the immediate site of the building in connection with the means of providing water, power, heat or access to the building..."

This is a direct quote from the VAT Act 1994, Sch 7A Group 6 Note 11. Try quoting this to water and electric companies. If it does not work, your client has 2 options really:

1) Simply pay the bill as though 5% VAT were charged. If the supplier takes enforcement action to collect the debt argue that the amount charged is incorrect.

2) Pay the amount billed. If the houses are to be sold, your client will be able to recover the VAT anyway.

Regards

Paul Taylor
VATease - VAT Advice

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