I have a client that is a Construction Company developing New Residential Dwellings for both themselves (to sell) and for clients. The supplies from our client in the course of construction are obviously Zero Rated aside from a few items which are standard rated such as freestanding appliances etc.
My client uses Sub-Contractors, most of whom Zero Rate Invoices for their work. There are however a few suppliers that have charged VAT at Standard Rate on supplies which they should have Zero Rates, and my client has subsequently reclaimed the Input Tax on their VAT return.
They have had a VAT inspection, and the officer has raised an Assessment for all of the Input Tax recovered from those sub-contractors VAT Invoices charged at Standard Rate.
Although the impact to HMRC's purse is Zero, HMRC are insisting on assessing for the Input Tax, and advising the Contractor to get in touch with all the subcontractors who have incorrectly charged VAT and recover the monies from them, who in tern will just adjust the Output tax on their next return. It all seems a lot of paperwork and stress all around for zero purpose to me.
Has anybody experienced the same or can offer any wisdom in how best to proceed? 708 or the VAT Internal Manual is clear that the Subcontractors should not be charging VAT, but i cannot find reference to the Contractor not being able to recover any VAT charged by a Subcontractor in error. Likewise any VAT registered business being liable for their suppliers charging the correct VAT amount when a VAT invoice has been provided. TIA.