I am carrying out some bookkeeping work for a building company and have this scenario:
One of their customers is having an extension that involves diverting the public sewer. Southern Water have charged my client a performance deposit that is non vatable. My client now needs to charge the customer for this. As my client is VAT registered should the invoice have vat charged on top of the performance deposit?
On the basis that Southern Water did not charge VAT on the performance deposit? It did charge VAT on other items in the schedule but not on the refundable deposit. I just got confused as my client is VAT registered.
Hi Jenny
So you havent taken a look at what I suggested?
With respect, we cannot help without full facts and at the mo we dont have any facts whatsover apart from the fact that your client is VAT registered.
So - Im guessing....your client has entered into a performance guarantee with the water authority?
So - why is your client's client being charged for the deposit? Will they get the deposit back if the builder performs in line with said guarantee and builder gets deposit back from water auth? What happens if said builder makes a mess of the job?
Never take for granted that the correct VAT position is cited on anyone's invoice, including these huge authorities - they often fudge it up (Ive been on the end of many a row with them in the wrong). So first establish if what they are doing is correct (Ive dropped a big hint in there about performance bonds).
Also - note the VAT that an end client is charged doesnt always follow the VAT that the middle client (in this case your builder) has been charged, which is why I dropped a massive hint about disbursements.
Is the end client entering into a performance bond with the water auth? I would imagine not. So would that make it a re-charge? Or a disbursement?
You also need to look at the changed rules re VAT on deposits.
BUT, Im still of the opinion that this charge should NOT be passed on to the client, there is no supply for the 'performance', its merely a cashflow issue. This is why you should check the contracts (albeit of course the contract could be wrong!)
Sorry, Im not being pedantic, this is a fabulous Q but (1) we dont have enough to reply and (2) its a superb development opportunity. Please do provide more info along with your thoughts after having a read up (some citations would be godo when you come back, be great to have a technical discussion!)
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
I am really sorry that you found my question lacking facts, I am incredibly busy at the moment and do not have the time to go into great detail. I really do appreciate you have taken the time to try and answer my question.
I have 3 pages of information regarding the criteria the builder needs to meet to be issued a refund which is in two stages 80% and 20% involving satisfying the legal agreement/deed of grant of easement/H&S, inspections etc. The contract involving the performance deposit is clearly between the building company and Southern Water.
I know the builder sends out a standard contract to customers and I also know a verbal agreement took place between the customer and builder regarding the performance deposit, whereby the customer agreed to finance the deposit until the buildings works had been completed which is next week. The builder will then be refunding the deposit and holding the liability himself until Southern Water refunds. The builder paid the whole bill to Southern Water also back in January.
The customer paid for the deposit back in January after an invoice including VAT was sent out by the builder, I took over the accounts in April so was not party to the arrangements. Had I been asked I would have recommended that the builder paid the deposit as it his duty to satisfy the conditions, not the customer as the performance deposit agreement is between the builder and Southern Water. I am aware of the guidelines on disbursements and recharges but felt that this did not come into play because of the above.
I based my question on the scenario that the invoice had not yet been sent to keep it simple.
I would love to have a technical discussion with you at some point, just when I have the time.
Anyway I have taken the easy way out and passed the issue onto the accountant!
Firstly can you also see the add on my reply to you? It is most annoying, I do not know how it got there?
Just wanted to let you know the accountant responded after getting advise from his VAT advisor. All the charges from Southern Water should be classed as a disbursement and therefore no VAT charged.
I am incredibly busy at the moment and do not have the time to go into great detail. I really do appreciate you have taken the time to try and answer my question.
I based my question on the scenario that the invoice had not yet been sent to keep it simple.
Tax - not simple. Always need more facts.
People often think there is such a thing as a generic tax question, but Joanne, despite being a busy lady, is particularly good at teasing out the facts that are often overlooked/not mentioned by posters but are critically needed to provide a response.
Firstly can you also see the add on my reply to you? Yes, I saw it yesterday. It is most annoying, I do not know how it got there?
Just wanted to let you know the accountant responded after getting advise from his VAT advisor. All the charges from Southern Water should be classed as a disbursement and therefore no VAT charged. Im assuming they didnt send any citations to aid your learning? Only Accountants have been known to be wrong before, even with their so called VAT experts (funnily enough Ive commented on this before and yet again today on another post, copied here)
''I had several discussions with this Accountants firm who told me 4 times I was wrong about an opt to tax, even condescendingly citing 'we are a large firm, we have two offices dont you know, we have VAT experts'....even though it wasnt one of the so called VAT experts I was talking too. My response 'why in hell am I not talking to one of these so called VAT experts then?' Never did get an answer to that one, but they finally admitted I was correct about the opt to tax. But they thought I was wrong just because oh wait Im just a mere bookkeeper!''
Even though Im actually a fully qualified Accountant!
Not saying they are wrong in this case! I was kinda driving you that way....
I do some tutoring as well, they all hate me because I never give a straight answer, but always point folk in the right direction, Im a firm believer in that being the best way to learn. Drives me as crazy as it will you and everyone else no doubt, especially as Im BOMBED at the mo with my clients.
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Joanne, despite being a busy lady, haha, not many would call me that!!
is particularly good at teasing out the facts that are often overlooked/not mentioned by posters but are critically needed to provide a response. Translate as a nightmare responder, especially when someone just wants a 'yes' or 'no' answer. But appreciate the compliment, thanks Caron
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
