VAT dilemma

[Assun23]

Hi

I'd really appreciate if anyone could give me any advice on the following dilemma. Its a long story so please bear with me.

My partner is a sole trader (ground worker) and for the past year he was working on a new development. Towards completion the developer was running low on funds and so arranged that rather than pay my partner he would instead let him have materials on his (the developer's) accounts. Then later on my partner would invoice for his total works minus the costs of these goods.

Unfortunately relationships broke down between them, mainly due to the fact that the developer couldn't sell the properties as quickly as he hoped and so he began to dispute how much he owed my partner (and how much goods he'd had on account) as he didn't want to pay out. He did this to most of the trades working on the site trying to use delay tactics etc.

Sadly as nothing was in writing, my parter would most likely come out worse off if he took him to court . The developer offered him a VAT invoice for the goods that he believed my partner had taken with Paid in Full on and £800 in good will which my partner reluctantly accepted.

However, I don't see how we can use the VAT invoice as the figures for the materials do not match my partner's figures on his sales invoice. And what could we show the £800 as??

Any help would be appreciated. We cannot afford an accountant so I am trying to keep his books at the moment.

[Jenni384]

Your sales invoices stand as they are. Any part of them that is unpaid after 6 months can have the VAT reclaimed as a bad debt. However, you say he's agreed the lesser amount in payment albeit reluctantly). If so, you could issue a credit note for the balance outstanding. If you wanted to pursue him for the remainder, you wouldn't issue a credit note and would have to pay over the full VAT to HMRC until bad debt relief in 6 months after invoice date.

It sounds like the developer is giving him a purchase invoice for items bought, sold +VAT so you can reclaim this against your VAT owed if it's a proper VAT invoice. It sounds like the £800 is a payment on account against the sales invoices.

As an example (hoping I've understood it correctly):

You issue sales invoices of £3000 + VAT

The developer pays £800 plus gives you £1500 +VAT of materials.

Therefore you are owed:
3000 + VAT = 3525
minus 800 paid
minus £1500 + VAT = 1762.50
Total outstanding £962.50

You can reclaim the £262.50 VAT on the goods that he has given you an invoice for.

I have assumed a VAT rate of 17.5% but I guess this all happened at 15% last year, but use whichever rate was in force at the time.

[Assun23]

Hi Jenni

Thank you for your quick response.

Basically my partner's original invoices were as follows:

Invoice 1
Subtotal £14,994
VAT at 0%
Minus CIS of £2998.80
Total £11995.20

Invoice 2
Subtotal £1474.25
VAT at 0%
Minus CIS of £249.85
Total £1224.40

Invoice 3
Subtotal £1799.99
VAT at 15% £270
Additional £40
Total £2109.99

He issued a credit note for £1,377.51 due to damages.

And calculated that with materials taken on account of £11,912.44, he was still owed £2039.64


However, the developer disputed everything as he didn't want to owe anything to my partner and so his accountant gave us a VAT invoice as follows:


Bill for goods and services from .... to.... on various sites.
Fee for the whole £12601.86
VAT £1890.28
Total £14492.14
Paid in full. Thank you for your remittance.



He also gave us a cheque for £800 which he said show as we wished but was not for labour and so they wouldn't deduct tax. Therefore not only is his figure on the VAT invoice higher than on our invoice (which is completely bizarre as my partner did keep a record of what he had), he also did not pay the CIS deductions on these invoices leaving us with a bill for over three and a half grand to pay. Because of all these anomalies I just don't know what to do with it all!! My partner cashed the £800 cheque so do you know if that is legally binding?



Does that make sense??? Any ideas? Much appreciated!

[David Griffiths]

Is your partner VAT registered?

Does his figure for £11,912.44 for materials include or exclude VAT?

And finally, has the developer given the proper certificates showing the tax deducted under the CIS?

[Assun23]

My partner is VAT registered. However some of the invoices he did for the Developer were at 0% as it was a new build etc. (two were at 0% and one at 15%). The £11,912.44 materials included VAT (£1553.80).

We have CIS statements for the period up to these particular invoices but none for the disputed invoices. Obviously we still have to pay our subcontractors' CIS despite not receiving any payment from the developer which has left us struggling.

[Assun23]

Can anyone help please?

[Assun23]

Desperate thread bump!

[kpdorset]

If you have not been paid for the labour, then no CIS tax will have been deducted. As you've not been paid, I would have thought no tax would be due.

[Assun23]

If you have not been paid for the labour, then no CIS tax will have been deducted. As you've not been paid, I would have thought no tax would be due.

The problem is that my partner still had to pay the labour to his subcontractors and it is their cis tax that he is liable for...depsite not being paid for the job.