Vat repayment to Client on Listed Building

Vat repayment to Client on Listed Building

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My client who is a builder, has been working on a listed building, whereby no vat is charged. However, vat can be claimed on purchases, but then has to be repaid back to his customer.
The treatment of VAT on purchases is straight forward and so is the refund of VAT from HMRC, but when passing the vat back to the customer, my client has raised a sales invoice for the work and then deducted a value which relates to the VAT reclaimed on the purchases. How do you deal with this in the accounts. As far as I can see, the vat element has already been dealt with and therefore the credit to the customer is coded into the nominal, but where? Sales?

Julia King

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Euan's picture
By Euan MacLennan
29th May 2007 10:17

What is going on ?
The normal procedure is that the builder buys standard-rated materials and reclaims the input VAT on his VAT returns. His supply to the customer, being approved alterations to a protected building, is zero-rated, so he does not charge VAT to the customer on his sales invoices and hence, has no output VAT to report on his VAT returns and will get a VAT refund in respect of this work. End of story.

Why on earth does the builder feel the need to give the customer a discount on his work which he happens to have calculated as the same amount as his input VAT? Is he confused about VAT? If he really is doing this, the discount is obviously a debit to sales.

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By theaardvark
29th May 2007 10:15

Why is he passing the VAT refund on to the customer?
Surely, if your client's invoices to his customer are zero-rated he is already giving the customer the benefit of the VAT refund.

e.g. Your Client does £100 worth of work and uses £100 worth of materials. Your Client buys the materials for £117.50 including VAT but claims the VAT back so they have only cost him £100.

He invoices £200 to the Customer (assuming no mark up on the materials) but doesn't charge VAT.

The materials have, therefore, only cost the customer £100 - the VAT exclusive value.

Regards

Paul Taylor
Senior VAT Consultant
Dains

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