I am amazed that people do not take into consideration the VAT that you are going to charge on your sales or pay on purchases when negotiating with your customers or suppliers.

Consumers

In the UK it is common for retail shop or internet sales to be VAT inclusive.  However, that is not the case in many other countries and when purchasing from abroad, so it may come as a shock when you get to the till or see the transaction on your statement.

Business

Trade sales in the UK are historically quoted without VAT and most businesses are used to doing the calculation.  However, the vendor should make this clear in catalogues, on leaflets etc. Quotes should clearly state “plus VAT” if relevant.

The Goods Supply Chain

When you sell goods that are to leave the UK they are given an “Incoterm” which is an indication of where the seller’s tax, insurance and other responsibilities cease. For the two extreme scenarios are:

  • “Ex works” whereby the seller’s responsibility ceases when the goods are collected at their premises.  The downside of this is that the seller has no control of the export documents in order to sell “VAT free”.
  • If good are sold “DDP” the seller is responsible until the goods arrive at the buyers premises. The seller has full control of export therefore the goods are UK VAT free but the seller pays all import taxes and clearance charge, freight etc in the other country.
  •  There are other incoterms that transfer responsibility at various parts of the supply chain and for various costs.

It is very important for both parties of the agreement to know their respective responsibilities and allocation of costs.

Property

The sale of property can be fraught with issues, especially with regards to the “transfer of a business” that includes premises.

  • Depending on the use of the property- is it part business or commercial i.e shop or pub with accommodations.
  • If commercial, is there an “option to tax” the sale proceeds.

The contract should clearly state the status of the building and if things go wrong, the allocation of fault.

If the contract is relevant and clearly states what is being sold or purchased with no hidden clauses amongst a lot of irrelevant wording then it is worth the paper it is written on.

Construction Industry

I came across this article in a magazine in which, a supplier of IT services claimed payment under a consultancy agreement at a specific hourly rate but the contract did not address the issue of whether VAT was additional to, or included in, the rate

Don’t forget to spell out VAT

Published:  28 November, 2012

LONDON: Failing to spell out VAT liabilities on contracts can cause problems warns law firm Cameron McKenna.

“The E-Nik case highlights the importance of construction contracts stating whether or not VAT is payable on top of the contract price,” says Karen Sanderson from Cameron McKenna.

“When it comes to the interpretation of clauses dealing with VAT, for contractors and other service providers, one thing is certain Ð silence is not golden.Ê In the absence of a clear and unambiguous term expressly stating that VAT is payable in addition to a quoted price, contractors may find themselves giving their employers an unexpected discount,” she says.

In E-Nik, a supplier of IT services claimed payment under a consultancy agreement at a specific hourly rate but the contract did not address the issue of whether VAT was additional to, or included in, the rate. The supplier claimed that VAT was payable on top of the rate, but the employer disputed this. Despite the fact that the employer, over the years in which VAT had always been payable in addition to the quoted hourly rate, a judge held that there was no agreement, either express or implied, that VAT should be added to the claimant’s fees.