A supplier to my client has been stating VAT at 0% on their invoices for the last few years. The supplier has now mentioned that they should have been charging 20% VAT. Can they make my client (their customer) pay the extra?
I think the answer is no, but just want to check...
Thanks
Replies (49)
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I would've thought that advice more appropriate coming from a solicitor than an accountant.
I believe the contract was £X+VAT, which works against my client.
No idea if it makes any difference but was this a supplier error or have the goods been reclassified retrospectively by HMRC?
Supplier error - believed they were exempt sales, beginning to think they were standard.
I thought you said zero rated. Probably doesn't matter, I suppose .....
If the contract price is "£x + VAT", I believe your client is, in strictness, obliged to pay. Though, in the interests of future orders, the supplier ought to consider whether that VAT is recoverable in the hands of the customer.
@ atleast . . . ." (OP).
The response (by spidersong) to the previous AWEB question [per the link in Anonymous‘s post at 17.10 today] sets out the fundamentals for the answer to your question.
Whether the services of a solicitor are required, or whether alternatively this matter can be handled by you as the accountant, will depend IMHO upon the further information which I would invite you to provide (albeit the odds at this stage are probably in favour of the supplier’s indeed having the right to charge the VAT).
(1) Are we here considering (as seems probable, albeit not certain) work in the construction industry?
(2) Is your client registered for VAT, such that they would be able to recover the VAT on any “VAT only” invoices ?
(3) Has your client checked, with HMRC, that the supplier has been indeed VAT-registered throughout ?
(4) Re the previous invoices issued, was there a VAT Registration Number shown on each invoice ? : If so, did they show “VAT at 0%” or similar ?
(5) Since your client entered into a contract which indicated “+ VAT” (presumably in fact “plus VAT, if applicable, at the appropriate rate”; or similar), why did he not query the absence of any “VAT” element, on the several years’ invoices ?
(6) Is part or all of the work of a nature which might cause doubt as to whether VAT should have been charged; or alternatively was all the work clearly of a Standard-Rated nature from the outset ?
(7) Has your client asked the supplier WHY they have previously excluded VAT from the invoices? – if so, what was the response ?
(8) Is there any possibility of your being (whether justifiably or otherwise) held partly or wholly responsible for not alerting your client to the VAT being excluded from the invoices ?
(9) What is the earliest date of the invoices at issue ?
(10) Is your client currently undertaking further work for the supplier ?
The answers to the above questions (others may arise, depending on your answers) may assist in providing a potential rebuttal of the supplier’s request for VAT previously not charged.
The key question is No. 2 of course. If your client is indeed VAT-registered, such that paying the “VAT only” invoice(s) would only be a “Cash Flow” problem (ie having to pay the supplier before they obtain the benefit of the Input Tax through a VAT Return) then in practice the supplier should allow your client to submit the relevant VAT Return, and obtain the advantage of so doing in terms of a reduced payment to HMRC, or a refund from HMRC, BEFORE the “VAT only” invoice(s) (if valid) is/are paid.
Basil.
EDIT. I prepared the above response BEFORE seeing your 18.29 post: that 18.29 post requires further explanation, please. Firstly, of course, its wording implies there being at the least uncertainty that any VAT should now be charged at all – that aspect requires RESOLVING before continuing further.
If any doubt remains, and if your client (whether so advised by you or otherwise) decides to pay the “VAT only” invoice(s) when the supplies were in fact exempt (or indeed zero-rated, or “outside the scope”) then the amount shown as “VAT” on that VAT-only invoice is NOT reclaimable by your client since it is NOT VAT at all: extreme caution required.
Would it be breaking a confidence to say what this service actually is ?
And the rationale behind the change of opinion ?
Not to mention, why was the price agreed as "£x + VAT", when neither party thought that there was any VAT ?
Lots of healthcare businesses caught out by supply of staff so I can believe that they've incorrectly been exempting the supply in the past.
I've updated the client, he seemed satisfied with getting lawyers involved if he receives a VAT invoice.
And your client certainly doesn't have to pay straight up - it was the supplier's mistake - I would tell the supplier that as it was their mistake they should bear the cost.... then back it up with solicitor if needed.....
Advice to a client who is a supplier would always be to include in contract + VAT (where appropriate) to cover them for just such an eventuality.
Advice to a client who is a customer would always be to include in contract (VAT Inclusive) to protect them.
Simple basic stuff really.
Although not directly answering the question, your client might want to consider how he would have acted had he found out that the supplier had charged VAT at S/R when it should have been R/R. (Although, as Basil hints at, that is potentially more of a problem than undercharging VAT.)
What does it say in the contract?
Can your client reclaim the VAT? However as Basil says, they can only reclaim if correctly charged.
Either ask for a copy of the tax opinion to demonstrate that the sales are taxable supplies or ask for the supplier to cover any costs for your client to obtain their own advice. Also your client should ask for an indemnity should the VAT not be recoverable or should HMRC take a different view.
Is this a building question ?
If it is, some details of the project might be hugely relevant.
I think Basil's edit is the most important immediate question. The cynic in me wonders whether the "differing advice" goes along the line of:
New adviser: "I see that you make exempt supplies"
Supplier: "Yeah - always been like that"
New adviser: "I think we can create an argument that your supplies are standard rated which means you can recover input tax although your customers will have to stump up the historical VAT"
Supplier: "OK - let's give it a go"
Risk is that supply actually IS exempt and the whole edifice crumbles and OP's client is left with irrecoverable "VAT".
To Recap:
Healthcare: partially exempt. what is supplied and to who matters a lot
V important to ascertian what is exempt and what isn't - probably will require checking contract by contract, invoice by invoice.
This directly affects the Partial Exemption ratio for your client and the supplier
(in simple terms more STD Rated sales = higher input VAT recovery)
Certian items can change their status: eg during the COVID-19 Pandemic, so timing of supply is important.
How important is this supplier to your client? are there alternatives? what VAT rate(s) do they charge?
If your client cannot reclaim the VAT I would be inclined to politely say no...
You haven't said whether this is as a result of a HMRC inspection?
I'm sure there are other questions to be asked, but without the details it's hard to suggest what.
What do you mean by "Certian [sic] items can change their status: eg during the COVID-19 Pandemic, so timing of supply is important."?
Peter... As I understand it the question was asked by a business buying in an initially exempt supply which was then changed to taxable by the supplier and is seeking the VAT using a VAT only invoice as the contract stated the charge was +VAT. So... for the customer partial exemption would only be an issue if they made exempt supplies. There is no suggestion of that.
I think there is. If their onward supplies were taxable, they wouldn't be making such a fuss about the VAT.
What do you mean by "Certian [sic] items can change their status: eg during the COVID-19 Pandemic, so timing of supply is important."?
PPE has changed its status during Covid. More generally, food is a good example. Zero rated until it becomes catering.
I've been disappointed with the information disclosed in this thread. I would've thought it essential to find out what exactly was being supplied before raising the query. It doesn't a respondent help to find himself fumbling in the dark.
"If their onward supplies were taxable, they wouldn't be making such a fuss about the VAT." - I think they are making a "fuss" because of the value of VAT to be charged to them. "Have no fear there, he told me the VAT would be pushing 8 digits" - even if recoverable I would be saying ... what the funk!
"food is a good example. Zero rated until it becomes catering." - did Covid change this? Has anything changed this?
I'm always disappointed with not only the lack of decent questions with facts... but also the half baked replies!
"food is a good example. Zero rated until it becomes catering." - did Covid change this? Has anything changed this?
I'm always disappointed with not only the lack of decent questions with facts... but also the half baked replies!
Ah - you've edited out two crucial words to create a "half baked reply".
Well done. Very clever.
Thank you but that was not my intention, I don't see the addition of "More generally" making a significant difference to the example provided.
Thank you but that was not my intention, I don't see the addition of "More generally" making a significant difference to the example provided.
Fair enough. Not everyone is perceptive.
Lol you are so funny - I'm glad you are my funtime friend. I'm perspicacious enough to know you were wrong, diddly wrong lol. Perhaps you would be kind enough to impart your wisdom as to how those 2 words make what you said correct?
More generally = outside the world of Covid, more generally than just stuff affected by Covid.
Don't worry if it's too complex.
Thank you for your reply. It's not too complex (for me), I think you have misunderstood what you actually wrote.
You said "More generally, food is a good example. Zero-rated until it becomes catering." (NB, no smart editing required).
But food is zero-rated until it becomes catering. That has never changed.
From the question asked it was clear that the supplier had apparently applied the wrong rate and was trying to correct it - it was suggested it may be a supply of staff. Staff is a supply that businesses often get wrong - I am sure you will agree. It is whether the staff come under the "direct control" of the customer and therefore providing, for example, exempt supplies of medical services as opposed to staff that are not eligible for the exempt supplies of medical services.
A world of difference from turnips becoming soup...
If you were suggesting the case in point was the same as I have just set out - why not just say that instead of "half-baked" bread into sandwich example. :)
Just saying.
Have a nice relaxing evening.
I don't intend to spend further time restating the obvious.
I can see that you think you've come up with something clever but you either take the point or you don't. No skin off my nose either way.
TBF, the question was just if the customer must pay a VAT-only invoice, not whether-or-not VAT should be charged.
A legal question and a 7½ figure sum.
https://www.accountingweb.co.uk/any-answers/how-to-use-any-answers
Tax Dragon wrote:
atleastisoundknowledgable... wrote:
TBF, the question was just if the customer must pay a VAT-only invoice, not whether-or-not VAT should be charged.
A legal question and a 7½ figure sum.
https://www.accountingweb.co.uk/any-answers/how-to-use-any-answers
Appreciate that, but thought it would be a simple run-of-the-mill answer that someone would know. The numbers are irrelevant.
Aye - but there wasn't enough information in the OP to say.
Appreciate that, but thought it would be a simple run-of-the-mill answer that someone would know.
My simple run-of-the-mill answer that really you should already have known is the same as spidersong's (as basil referred to): your client probably needs to talk to a legal professional rather than an accountant. For the reason spidersong gives.
@ atleast…. (OP)
[1] Healthcare is a minefield (distinguishing a supply of staff from a supply of exempt services is not always straightforward, hence many disputes with HMRC and Tribunal Cases).
[2] The key points of your previous posts are:-
(i) Your status - point (8) of your 16/11/20 post (at 22.26) – you are NOT the company accountant.
(ii) The massive amount at issue - your 23/11/20 (at 11.32) post refers to the VAT at issue “pushing 8 digits”.
[3] (a) In view of [2](i) above, then frankly you should steer clear of giving any material advice to the company director, when surely he must have queried this matter already with the company’s external accountant (and internal accountant if there is one).
(b) In view of [2](ii) above, then it is almost inconceivable that the company did not prepare detailed costings for the contracts, before they were signed; and such costings work surely would have considered in detail the VAT at issue (which must have had a substantial impact on the profitability).
[4] You should avoid giving advice, other than recommending that the company director advises the company (I am not sure whether he is the controlling director or not) that it appoint a VAT ADVISOR to provide guidance on (i) all the invoices received and (ii) invoices expected to be received in the future (on the basis of the existing contracts); and also seek guidance from a SOLICITOR on the legal implications.
[5] Whilst of course I lack your personal knowledge of the director and the company at issue, I cannot avoid at least considering the possibility that the director may have been less than forthright in not advising you of what advices he has previously received (from the company accountant and others).
Basil.
I'd missed
(i) Your status - point (8) of your 16/11/20 post (at 22.26) – you are NOT the company accountant.
Given that, I'd amend your
[4] You should avoid giving advice, other than recommending that the company director advises the company (I am not sure whether he is the controlling director or not) that it appoint a VAT ADVISOR to provide guidance on (i) all the invoices received and (ii) invoices expected to be received in the future (on the basis of the existing contracts); and also seek guidance from a SOLICITOR on the legal implications.
by removing all the text after the first comma and replacing said comma with a full stop.
@ Tax Dragon.
Whilst as ever respecting your opinion, I intentionally phrased my post to indicate that the OP should make a recommendation to the DIRECTOR (impliedly in their personal capacity) that they IN TURN give advice to the company. Given also the need, which I consider essential, for the company to THEN take professional advice from two specialists, I feel that it would be remiss not to give that advice to the director, since not following that advice could prejudice the director’s interest in the company.
Fine points, of course, but I believe that my judgment call is correct (albeit I had considered the alternative viewpoint as impliedly espoused by your goodself).
Basil.
I yield to you on fine points, Basil. My analysis is always somewhat coarse. (And I am pleased to note that, at the coarse level, we are in full agreement.)