Client refusing to pay VAT

Discussion in 'Accounts & Finance' started by AH_2020, Oct 16, 2020.

  1. AH_2020

    AH_2020 UKBF Newcomer Free Member

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    I had my own Ltd personal services company for many years when I was working as a contractor. In 2019, I decided to close down my company since I was working in full time employment. Soon after I was made redundant from my job and got another job as a contractor and opened a new company, since my old company name was available I used the same name for the new company as the old company, but they are both separate companies with separate company registration numbers.

    I recently completed a job for a client and they are refusing to pay VAT, because they say my company has been struck off on companies house records, but they are looking at the old company. Even though I have provided them a valid VAT registration certificate and COI certificate for the new entity.

    Can anyone advise what I should do? Seems I have a battle ahead to get the VAT from the client and legally I must charge VAT and client cannot object to paying VAT.
     
    Posted: Oct 16, 2020 By: AH_2020 Member since: Oct 16, 2020
    #1
  2. estwig

    estwig UKBF Legend Free Member

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    You seem to have answered your own question.
     
    Posted: Oct 16, 2020 By: estwig Member since: Sep 29, 2006
    #2
  3. Newchodge

    Newchodge UKBF Big Shot Free Member

    14,512 3,896
    Is the client VAT registered? Did you quote x or x+VAT or y(total of x+VAT)?
     
    Posted: Oct 16, 2020 By: Newchodge Member since: Nov 8, 2012
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  4. AH_2020

    AH_2020 UKBF Newcomer Free Member

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    Any advise on what I can do? Do I have to pay VAT if client didn’t pay?
     
    Posted: Oct 16, 2020 By: AH_2020 Member since: Oct 16, 2020
    #4
  5. estwig

    estwig UKBF Legend Free Member

    12,515 4,449
    The client hasn't paid your invoice, pursue them for money owed, or swallow it yourself.

    The VAT man will want his piece of the pie, he always does.
     
    Posted: Oct 16, 2020 By: estwig Member since: Sep 29, 2006
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  6. AH_2020

    AH_2020 UKBF Newcomer Free Member

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    I assume so, since they are a company that employs many people, not a small company.

    I worked for an agreed day rate. Normally it’s a given that when you agree a day rate or hourly rate as a contractor that it excludes VAT, that’s what I’m used to in Engineering. However, this job was not an engineering job, which is what I’m used to, it’s in a completely different sector.
     
    Posted: Oct 16, 2020 By: AH_2020 Member since: Oct 16, 2020
    #6
  7. estwig

    estwig UKBF Legend Free Member

    12,515 4,449
    Ah now we get to it.

    So from their point of view you have just added 20% to the invoice without any prior warning, the fact you are saying it's for VAT isn't relevant to them. You might have to suck this up.
     
    Posted: Oct 16, 2020 By: estwig Member since: Sep 29, 2006
    #7
  8. AH_2020

    AH_2020 UKBF Newcomer Free Member

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    surely if they’re VAT registered they would claim the VAT back anyway.
     
    Posted: Oct 16, 2020 By: AH_2020 Member since: Oct 16, 2020
    #8
  9. Mike Hayes

    Mike Hayes UKBF Enthusiast Free Member

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    You would need to chase the client for the full amount owed. That said:
    1. If you do have an agreement in place (you should do) but didn't communicate well with the client (i.e. VAT was covered in the agreement but you never bothered to mention it in estimates etc, only at the point of invoicing), then perhaps consider lowering your charge to cover the VAT as a gesture of goodwill.
    2. If you do not have an agreement in place and also didn't communicate the VAT previously, then just forget it and lower your invoice - you're in the wrong for not bothering to communicate properly with your client at any point of business.
    You will have to pay the VAT but you can reclaim it again if you write off the invoice (e.g. credit note, bad debt). Likewise if you lower your invoice to the total amount the client is willing to pay (by way of credit note), you'll only end up having to collect and pass on the relevant amount of VAT for the final amount billed.

    Link them directly to your company at Companies House (https://find-and-update.company-information.service.gov.uk/).

    Your agreement should also cover this as it should state your company name, company number and registered office address. Your invoice and email footer should also state this information, so it shouldn't be possible to confuse two companies with the same name.
     
    Posted: Oct 16, 2020 By: Mike Hayes Member since: Jan 7, 2016
    #9
  10. NickGrogan

    NickGrogan UKBF Ace Full Member

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    Your fee is £100 for example.

    With VAT added

    £100 + VAT = £120, they reclaim the VAT net cost £100

    With VAT included

    £100 inc VAT = They reclaim the VAT, net cost of £83.33
     
    Posted: Oct 16, 2020 By: NickGrogan Member since: Nov 15, 2012
    #10
  11. UK Contractor Accountant

    UK Contractor Accountant UKBF Legend Full Member - Verified Business

    5,098 899
    Get your Accountant to confirm to client the company registration number and vat number and attach copy of VRC.
     
    Posted: Oct 16, 2020 By: UK Contractor Accountant Member since: Sep 18, 2013
    #11
  12. John Hemming

    John Hemming UKBF Regular Full Member

    390 62
    I have not looked at the contract law on this recently and it may have changed (although it probably hasn't). The law was that if you agreed a price and did not specify plus VAT it was inclusive. Hence that drives the issue. Whether there is a prior limited company that has been struck off or not is a different issue. However, the law may have changed, but I don't think it has.
     
    Posted: Oct 16, 2020 By: John Hemming Member since: May 23, 2019
    #12
  13. AH_2020

    AH_2020 UKBF Newcomer Free Member

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    My agreement did not mention VAT, just a day rate. Although I told them I would be invoicing them through my Ltd company. However, in my 15 years experience as a contractor in engineering , rates are always agreed exclusive of VAT. If you are VAT registered you add on VAT to your invoice and if you’re not VAT registered you don’t. This is not usually a problem for clients because they claim back the VAT anyway so they won’t be out of pocket because they are paying VAT on your rate.

    in any case, if they insist on not paying VAT, I’ll ask if they can pay me as a sole trader. So I’ll avoid the VAT issue.
     
    Posted: Oct 16, 2020 By: AH_2020 Member since: Oct 16, 2020
    #13
  14. Nico Albrecht

    Nico Albrecht UKBF Enthusiast Full Member - Verified Business

    842 173
    You screwed up big time here and they are out of pocket technically by 16%. I nothing hate more than a business pulling those stunts instead of making it very clear that the quote is inclusive or exclusive of vat. Your personal experience of the industry is irrelevant here and your day rate quoted would be inclusive of vat there are plenty of engineers and companies who can provide a proper quote.
     
    Posted: Oct 16, 2020 By: Nico Albrecht Member since: May 2, 2017
    #14
  15. AH_2020

    AH_2020 UKBF Newcomer Free Member

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    I disagree. They are not out of pocket because they will most definitely be VAT registered and will be able to claim back the additional VAT.

    PS. I did not provide any quotation, it was an agreed day rate that’s the same as what others were getting in the team that aren’t VAT registered. I’m the one out of pocket here.
     
    Last edited: Oct 16, 2020
    Posted: Oct 16, 2020 By: AH_2020 Member since: Oct 16, 2020
    #15
  16. Nico Albrecht

    Nico Albrecht UKBF Enthusiast Full Member - Verified Business

    842 173
    Again irrelevant what others make in your team. You negotiated or offered a rate and didn't not disclose the vat element as exclusive. You being vat registered is again none of their concerns. They got you basically 16% cheaper than the other engineers. Changing the invoice now to a sole trader could cause various problems. Other more qualified people can explain on here why but technically you would run a vat tax evasion and posting with your name on here and hmrc out there good luck.
     
    Posted: Oct 16, 2020 By: Nico Albrecht Member since: May 2, 2017
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  17. AH_2020

    AH_2020 UKBF Newcomer Free Member

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    Posted: Oct 16, 2020 By: AH_2020 Member since: Oct 16, 2020
    #17
  18. AH_2020

    AH_2020 UKBF Newcomer Free Member

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    Please do not defame me, I have never evaded tax and do not plan to. Whether I’m working as a sole trader or through Ltd company, I would only do so legally, I have no reason to believe either to be anything other than legal and expect that my accountant would confirm that, or advise me if it’s not.

    please stop making false accusations against me on a public forum or I could Per-sue a defamation case against you.
     
    Posted: Oct 16, 2020 By: AH_2020 Member since: Oct 16, 2020
    #18
  19. Nico Albrecht

    Nico Albrecht UKBF Enthusiast Full Member - Verified Business

    842 173
    Good luck with that but quite sure your accountant can explain to you what the implications are in regards to how you wanna invoice now and switch to sole trader.
     
    Posted: Oct 16, 2020 By: Nico Albrecht Member since: May 2, 2017
    #19
  20. AH_2020

    AH_2020 UKBF Newcomer Free Member

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    Actually I have not yet invoice them at all, so I don’t see how there can be anything wrong with working as a sole trader. It was my suggestion that I could use my Ltd company to invoice them as I thought it would be more tax efficient. I can’t see anything wrong with this so please don’t make wrong assumptions about me on a public forum.
     
    Posted: Oct 16, 2020 By: AH_2020 Member since: Oct 16, 2020
    #20