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Claiming VAT which is charged at the wrong rate?

13th Jan 2017
VAT Consultant vatadvice.org
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In the Construction sector, this can be a problem, not just between taxpayers and HMRC, but also between Contractor and his customer. Where a Contractor charges VAT at the standard rate, but the supply should be charged at the reduced 5% rate; what can the customer do?

VAT law states that VAT which is “chargeable” can be reclaimed, either on a VAT Return, or using a D-I-Y claim form. Thus, the difference between the reduced and standard rates cannot be claimed. The customer has to revert to the Contractor to correct the incorrect invoices, and also refund overpaid VAT. The Contractor will be able to reclaim this VAT on his own VAT Returns.

But, very often the problem is that of time limits, as errors take some time to come to light. The Contractor only has a four year window in which to adjust his VAT Returns. In some cases, the time limit rules leave HMRC with a windfall, when the customer can only claim at 5%, but the Contractor has accounted for VAT at the standard rate, but is out-of-time to make an adjustment.

This issue was mentioned in the D-I-Y case: http://financeandtax.decisions.tribunals.gov.uk//Aspx/view.aspx?id=9390

A previous case is here: http://www.bailii.org/uk/cases/UKFTT/TC/2009/TC00287.html

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By hardinggf
09th Oct 2019 18:12

Dear Les - I'm hoping you can help me with a similar issue to this. For the purposes of this query I am a consumer.
Recently a builder incorrectly charged me VAT at the standard rate for pre-construction work on a new build project despite my argument that this work should have been zero rated as detailed in VAT Guidance for new build section 3.1.2. We had an agreement that the VAT amount charged would be refunded to me once planning permission had been granted ( although planning permission is not required to zero rate services according to the guidance notes ). When planning permission was granted I sent the builder a copy and asked for my refund. Since then, he has constantly refused to pass me the refund saying he can't do it because I am not VAT registered - this can't be correct can it ?
Advice from HMRC tells me that he is obligated to refund me the incorrectly charged VAT either by raising a credit note invoice for the amount to be refunded or by simply completing a VAT652 form.
Can you please advise how i should proceed if the builder continues not to pay - could I proceed in the Small Claims court and if so are there any VAT rules and regs that I can quote ?
Many thanks for your help Les.
Kind regards
Graham Harding

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