VAT WAS CHANGED TO CUSTOMER AT INCORRECT RATE - The Book-keepers Forum (UK)

Lizzy D · Newbie

VAT WAS CHANGED TO CUSTOMER AT INCORRECT RATE

Shamus · Forum Moderator & Expert

Hi Lizzy,

just to be sure of matters I would confirm the situation with HMRC rather than just trusting a photocopied document which could have been tampered with.

Assuming that everything is above board then perhaps the easiest approach would treat the return as a refund as you would for the repair of defective work.

If you think about it the client actually paid VAT when they did not have to which was the equivalent of them overpaying for the work by the amount of the VAT so a refund of this manner seems to be the most logical approach.

Just ensure absolutely that everything is Kosha with HMRC and that they are completely happy with this treatment. The last thing that you want is to find that you have issued a refund where the VAT was actually applied quite legitimately.

What about all similar clients that you have invoiced VAT inclusive? Are all of their invoices correct?

semsley · Guru

What sort of work was carried out to the property? As far as I recall new build works are zero rated but repairs are standard rated.

Peasie · Expert

How many properties escape having VAT applied to them on any work carried out? Not having paid much attention to it but I thought it just applied to things like new builds, specific work for handicapped people where there is an exemption certificate, specific work on churches (don't know where I'm getting that idea from). Very little I thought escaped VAT these days. I know there might be a few other things.

If they are VAT registered (having a VAT inspection) why does it make a difference if they were charged VAT which they would then reclaim themselves?

There is something I am clearly missing here.

(Now if this had been on one of the accounting forums mentioned elsewhere I'd be ripped to shreds for posting something like this as I clearly am not 100% sure of the subject).

Shamus · Forum Moderator & Expert

Thats what I was thinking as well Sheila when I first read the post.

Got me to thinking maybe the photocopied documents were not all that they seemed.

I'm sure that this isn't the first time that Lizzies company has done work so I would not have expected them to make a fundamental mistake of this nature.

BackOfficeGroup · Guru

as far as I am aware, VAT should be charged as standard on repairs, only zero on new builds. And what would be the point now of credit noting the VAT, as its all in the system and has been properly entered on VAT returns by both companies concerned, so would not affect the status quo to the revenue either way.

I would get further clarification from HMRC and if that is the case of zero rating to repairs on property, I want to know as I pay VAT on my buy to lets!!!

P

RobH · Expert

VAT and property is a difficult area. Lizzy what kind of work was done (you mention renovations but does this mean just repairs?) also what kind of property, if commercial I would have thought work was standard rated but if the client worked from a residential property it is conceivable that it is neither zero or standard but potentially exempt (in which case subject to de minimis rules, there may be an issue with your input tax too).

Peasie, I think if this is all bona fide, then hmrc have made the customer repay the vat on the renovation work as it would be considered incorrectly claimed despite having an invoice to back it up. I would have thought the inspector would be wanting to take at look at Lizzie's company to at the very least impart some knowledge on this difficult area.

Assuming all is as the customer has said and it has been verified with hmrc (I assume there are references etc that can be checked), then I would issue a credit note for 'VAT only', send the client a cheque and make adjustment on next vat return. If it is an amount exceeding £10k then a letter to hmrc would need to be sent too.

Rob