Incorrect Vat Charged By Builder. Now wanting more money!

[Allgood123]

Hi all,

I am just after some advice on a very odd situation.

My builder who completed renovation works on my home last year with his final Invoice sent to me in January.

Before he started the work on the house he had sent me messages saying that the work would only be 5percent vat as it is a refurb. To which I am not a builder so thought ok fair enough and he explained it a bit to me about how it would all be 5 percent vat. So after 3 invoices and £37,500 I paid him and owing us still £1600, now 6 months later he is asking for proof the home was empty for 2 years prior to us starting the work. Which he knows it wasn’t because he came to look at the project when people were living in the house. He is saying if I cannot prove the home was empty for 2 years before we started the work he would now have to bill me the 15percent vat which he never charged throughout his work. I have his messages saved and proof of him saying it would be 5 percent vat and all of his invoices. Where do I stand with this would you think? I feel like he’s said this at the start to secure me to going with him and now I’ve asked for my £1600 back which he over charged me for a whole week he said he worked which he didn’t.

Any advice on this would be very helpful.

cheers

[ToughButterCup]

Lets see if this is correct....

• He knew from the outset he should have charged 15% VAT because of the Occupancy rule.
• He appears to have misrepresented ( allegedly deliberately) the VAT requirement as 5%
• He has overcharged you for a week's work. About £1600

It is a normal requirement for customers to do their own Due Diligence. Most don't. Assuming that in this case you did (check the VAT rate), then you could have challenged the VAT rate. You didn't.

 

In terms of the overpayment (£1600), you could have done your Due Diligence before paying that invoice. You could have challenged it at the time. You didn't.

 

Is all of that correct?

 

There lots online about Due Diligence in the building context.

Edited July 11 by ToughButterCup

[Allgood123]

Yes so from the start he said it would only be 5percent vat on the work as it was a refurb. I am not a builder and he explained he charges me 5 percent vat and claims the other 15percent back.

I think he has then realised after 6 months it was not the case and is not wanting the remaining 15 percent vat. 

In regards to the £1600 we were paying him £10,000 a month until the work was complete so paying upfront. His last invoice included a full weeks work which I pointed out and he said it was a copy and paste errror on his side. Still have not got the £1600 back he owes me. 
 

Thank you

[Alan Ambrose]

It could be that he's had a visit by the VAT-man who has pulled up these invoices - they generally like to pull up one or two. Or maybe his accountant has done the annual accounts & audit.

 

Start by asking the builder why he has changed his tune and why now? Have you figured out whether the 'empty for 2 years' is a thing for VAT? And, if so, do you qualify?

 

Sometimes the exact status of the customer does affect the VAT situation - charities for instance. It wouldn't be unreasonable in the situation to ask for some evidence that the VAT will be charged correctly and paid over to the VAT man correctly.

[Allgood123]

The property does not qualify for the reduced rate of vat and reading into it never has. I feel he’s said this from the start to secure the job and now asking for more money. 
 

The main thing I would like to know is where does the responsibility lie here? 
He has incorrectly charged 5 percent VAT and now wanting another 15percent? 
 
Is this not like anything you were to buy that it’s the business or sellers responsibility to charge the correct VAT and not the customer or consumer? 
 

Thank you
 

[LSB]

It may be that he did this deliberately to get the work.

But, that said I think he is right, if you were not entitled to the reduced VAT rate, which you won't be if the house was occupied in the last 2 years, then I think you will need to pay up.

Less the £1600 which he owes you, does that also need VAT adding to that.

 

Just checking, is he definitely VAT registered, if he isn't then he can only charge VAT on materials where he pays it, not on his work.

 

 

[nod]

It’s an absolute minefield I can charge full vat on part of a site But zero on another part of the same site 

Though the end user changes has helped Client pays or is except 

It very easy for a contractor to charge to much or to little 

[Alan Ambrose]

>>> Is this not like anything you were to buy that it’s the business or sellers responsibility to charge the correct VAT and not the customer or consumer? 

 

It sounds like good logic, but most quotes / contracts / invoices say '+VAT at the applicable rate' or similar. For 99% of consumer transactions that's obvious, but not for building stuff.

 

If he did make a mistake as he claimed and you 'relied' on it in legal speak, it wouldn't be unreasonable to offer to meet him halfway. The extra VAT is about £4K?

 

I think it could go either way in County Court maybe depending on the exact text of any docs, emails etc. It would probably cost £1-2K or so each if you both use solicitors and (unusually) you actually do get to court. It'll also take at least a day each of your time and 9 months or so elapsed and a fair amount of aggravation unless you're very thick-skinned. So, it would be better to sit down and negotiate a solution. Failing that, have the solicitors try and negotiate a solution.

 

As LSB says, check whether he's VAT registered, how you got here, and get the fullest story you can on 'how he came to make the mistake'. By all means document that conversation.

[Dave Jones]

either his accountant has uncovered it or hes had an HMRC audit.

 

Guess it depends if you ever need him to come back and fix anything as to whether you pay him.

 

 

[Allgood123]

As it stands now I won’t be paying the remaining vat he is demanding from me. I feel as though if he has managed to invoice me multiple times but still not mentioned anything regarding this I am not liable. He could have checked all of this from the start but hasn’t and as I wasn’t aware of this I wouldn’t have even looked into why he was charging 5 percent vat. I wouldn’t expect to buy something from a shop and then 6 months later they come back and ask for more money because they charged me the incorrect vat and I have a receipt for this? I feel he has messed up here and now trying to bully me into paying him for his mistake? 

[ToughButterCup]

8 hours ago, Allgood123 said:

...

I feel he has messed up here and now trying to bully me into paying him for his mistake? 

 

There's a good argument to be made that both parties are at fault here. 

 

Both of you could have checked. 

[mr rusty]

I think this might hinge on what the quote/offer said. It could have said one of 3 things :-   The price is £X Inc VAT or The price is £X plus VAT or The price is £X and the vat is £Y and the price to pay is £X+Y. If it's the 2nd option I think you are stuffed. If it's either of the other two, maybe not...

[Temp]

This exact situation is used as an example here...

https://www.taxinsider.co.uk/wrong-vat-shown-on-invoices-what-happens-next

Quote

 

Wrong VAT shown on invoices: What happens next?

 

It goes without saying that businesses should always show the correct amount of VAT on their sales invoices; but mistakes sometimes happen. The VAT amount can be wrongly calculated by a mathematical error, or the wrong VAT liability can be applied (e.g. a zero-rated supply is treated as standard-rated, or a standard-rated supply treated as subject to the lower rate). 

 

Snip

 

Example 2: Wrong VAT rate 

 

A building company incorrectly treats the refurbishment of a residential property 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 invoiced for £15,000 plus VAT of £750 when it should have been £3,000.  

HMRC will still require the business to account for the £3,000 actually due.  

The supplier can issue a supplementary invoice for the correct amount of VAT to recoup the undercharged VAT from the customer, assuming the contract allows them to do so.