'Forgotten' VAT Invoice

[Kelly_Allana]

Hi there, I'm really hoping someone can help me.

We have received a 'forgotten' invoice for VAT on our kit.

When we signed the contract, the wording said 'VAT is normally 0% on new builds'. Our invoices came in four stages, none of which mentioned VAT.

 

Two months after having fully paid for the kit, we've now been told that they 'forgot' to charge us VAT and have issued us a bill for £16k. The reason they forgot is because they usually construct the kit but didn't with us so it was supply only which I'm now aware should have been subject to VAT but it was never mentioned in the paperwork / invoices so this large bill was totally unexpected.

 

I'm aware that we can reclaim the VAT but that's quite a way down the line.

I suppose my question is, do we have to pay this? 

 

Thanks

[newhome]

Yes unfortunately they can ask you to pay the VAT. It's probably been picked up by their accountant and companies can ask customers to pay VAT if it's been billed at the wrong rate, or conversely they can give you a refund if they have charged you VAT where it should be zero rated. You could argue the point with them but ultimately you should have expected to pay really as only supply & fit or labour only costs can be zero rated. You will really need invoices with the full VAT included in them to send to HMRC as HMRC will expect to see invoices with VAT applied to them, not a separate invoice for VAT on its own (assuming that's what you mean by a 'bill of 16k'). Maybe as a compromise you could negotiate with them that you weren't expecting this charge, don't have the money to pay it currently but agree to pay it back when you receive the reclaim? If you don't yet have the full kit however they probably hold most of the cards. 

 

[Temp]

I would say yes unless there it something in the contract that gets you off the hook...

 

https://www.mytipsandadvice.co.uk/2017-10/errors-on-your-vat-invoices-UKTAVAAR_EU07110401

 

Incorrect rate

Example. A building company incorrectly treats a supply as subject to VAT at the lower rate of 5% when it should have been subject to the standard rate of 20%. The project was mistakenly invoiced for £15,000 plus VAT of £750 when it should have been £3,000.

 

HMRC will still want it to account for the £3,000 actually due.

If the customer were able to reclaim the VAT on the project they would only be allowed to reclaim the amount actually shown on the invoice - £750 rather than the £3,000 actually due. However, as they would only have paid £750 to the supplier they would not be out of pocket but HMRC would still be £2,250 up overall.

 

Tip 1. The supplier can issue a supplementary invoice for the correct amount of VAT in order to recoup the undercharged amount from the customer. This is assuming the contract allows them to do so.

 

Penalty. This type of error is viewed as “careless” so could attract a penalty of up to 30% of the tax understated, as well as late payment interest.

Tip 2. Refer to VAT Notice 700/45 (see The next step ) for further guidance on putting errors right.

It’s important to check that the right amount of VAT is charged on the invoice or you could be out of pocket even if HMRC is always up on the deal. If the wrong amount of VAT has been charged it can be adjusted through the issue of credit notes or suplementary invoices marked “VAT only”.

[Temp]

Any words on the receipt such as "paid in full"? Or "full and final settlement"? I don't know what you would need to get out of it. Legally and morally they are right.

[Dave Jones]

the only way they can force you to pay is court. currently a min 30 week wait for a small claims slot, normal county court worse.

 

Depends if you want the cash for cashflow (borrowing it) or have it spare.

 

If i was using borrowed cash id write them and offer to pay it off in X months whenever you will be submitting your reclaim, their error.

 

Obviously if you plan on using them again its a different decision.

 

 

 

[nod]

I’ve charged vat at a lower rate by mistake and found it difficult to recover and on two occasions had to stand MY mistake 

You could tell them that you are unable to pay this demand 

But will give a written undertaking to settle this when you receive your vat claim 

It’s a big mistake on there part

They will have realized that it not going to be a simple as sending you a fresh invoice 

[Kelly_Allana]

Thanks for the replies. I have told them I will pay it but at a time when I have a spare £16k. Suppose I'll just have to suck it up!

 

I don't have any form of receipt to say that it's paid, just an email confirmation that they received the final payment.

 

@newhome I'll ask them to amend the invoices as the VAT one is just that on its own.

[joe90]

What’s the wording on the quote? If I had a  Quote and they forgot to add VAT or it was not specified then “final payment” is just that IMO.

[Thedreamer]

Lots of good advice here.

 

I agree with others, go back to them, say you will pay it but when you receive your reclaim. This is positive for both parties.

 

In the meantime they will need to pay the output VAT, but it worth remembering that they would have been able to reclaim part of the kit cost on the materials and other overheads. The company will need to therefore finance the gap for the remaining items (staff costs and profit margin), until your reclaim comes through. 

 

Do you have a budget/projections for your self build? Might be worth thinking about this just now so you will know the position of what, is not claimable, should be zero rated etc. Lot of info here on the forum. I think you can access this once you have ten posts. 

 

Check that your current invoices will be compliant for your future VAT reclaim.

 

 

[newhome]

As @Thedreamer says there a post in a VAT sub forum that you will be able to access once you’ve made 10 posts. 
 

 

It doesn’t go into your scenario as generally we find members have been charged VAT where they shouldn’t and it explains how to get the VAT overpayment back as HMRC will not refund it.