Customer refusing paying VAT on quote after becoming VAT registered

[Enaver]

I'm a landscape gardener and quoted for a job in Februay, sent a quote to a the customer of which they were happy to go ahead with and accepted in early March with a tenative start date in May.

At this point my business was not VAT registered and my business was only a few months old. However by mid March is became apprant that I would need to become VAT registered as my turn was predicated to go over the threshold with the amount of work coming in.

In the meantime the customer had called me back to make some alterations to the quote, which I did. However once I got my VAT number and everything was up and running I contacted my customer to let them know that I would now have to legally charge VAT and sent them an updated quote, along with the extra work they required.

They are being quite passive aggressive about not paying the VAT and that I should honour the original quote, to which I have said I can't. We have had a few back and forth emails and its got to the point where I find the relationship has soured and even if they did accept the updated price they would be resentful and it would cause issues during the project.

I've notified them that in light of the issues surrounding cost concerns and trust, we have decided not to proceed with the quoted project.

The customer is a solicitor and I want to make sure everything I've done is above board.

 

[Scalloway]

If they haven't accepted the quote then just walk away. Your contract is only concluded when they accept the quote and you start work.

 

[numbersrule]

I'm surprised a solicitor doesn't understand your position.

 

[Mark T Jones]

The deal has fundamentally changed from their perspective

Simply present your offer as is, leave them to either accept or decline it (pretty much what has happen, bit it sounds like the situation needs closure)

 

[MikeJ]

If they haven't accepted the quote then just walk away. Your contract is only concluded when they accept the quote and you start work.

No it's not. The contract is in place once they've accepted the quote. Work doesn't need to have started.

If they've accepted the quote and you walk away, you're in breach of contract.

 

[Newchodge]

No it's not. The contract is in place once they've accepted the quote. Work doesn't need to have started.

If they've accepted the quote and you walk away, you're in breach of contract.

Yes. But the client requested changes to the scope after the quote had been accepted. What matters is whether the quote for the newly defined project had been accepted. If it was the client is within their rights.

OP You have to charge VAT, but you can also reclaim all VAT paid out. Have you checked the bottom line if you keep the total price including VAT to the accepted quote?

 

[Mark T Jones]

Keeping it real...

Despite being solicitors, it's highly unlikely the client will be throwing the law book around.

If they do in a serious manner then the OP will need dedicated advice.

In reality it's simply a failed negotiation. IMO the OP should acknowledge their mistake in not realising they were at the VAT threshold, apologise & move on.

 

[Paul Kelly ICHYB]

Ideally, move on, but, remember, if register for VAT, you have a legal obligation to charge it.

Also, you are not charging more, you are collecting money for the Government!

 

[Lisa Thomas]

From the customers pov they are charging more, especially if the customer is NVR and cannot reclaim the VAT.

 

[fisicx]

They are being quite passive aggressive about not paying the VAT and that I should honour the original quote, to which I have said I can't.

You can. You just have to absorb the VAT costs.

Or walk away from the project.

 

[Paul Kelly ICHYB]

Or remind them that being VAT registered is a legal obligation and you are not making anything extra!

 

[DontAsk]

IF you agreed a price (but it seems like there was some renegotiation, so maybe you didn't) then they are perfectly within their rights to hold you to the contract.

As a consumer, it's of little concern to then whether you are VAT registered or not.

I certainly would not agree to pay more, to cover the VAT, in a similar situation.

 

[IanSuth]

Wonder if something like this might work

Dear Fred,

I am sorry for the recent turn taken in our negotiations so thought it better to put all down in a single message. When we initially entered into this quotation process I was not VAT registered and so made the initial quote not including a VAT element. Then unfortunately the process was elongated to accommodate your xyz changes. During this period of time due to the growth of my business I reached the point at which by law I had to register for VAT and then add that to all subsequent invoices.

Whilst i totally understand your position regarding me having given you a quote, I appear to be trying to renegotiate, note I have not changed the amount I will be taking at all. Simply that the delay in the process to deal with your queries, means I now legally have to charge, collect and pass on VAT for HMRC. I am happy to either continue with the work for the previously agreed price (but with VAT now added) or you can find another landscape gardening firm who can fulfill the work at the overall price you are looking for.

Once again, I am sorry for the fact this delay has caused a change in my legal status with regard to VAT and thus the amount you will need to budget for if using us.

Regards

Enaver

 

[DontAsk]

note I have not changed the amount I will be taking at all.

That's not what the customer sees. They see the OP taking 20% extra, compared to the original quote.

What if it was material prices or labour costs, e.g., rise in minimum wage, that had gone up in the meantime, rather than the need to add VAT? I would still not agree to an increase on the original quote if I were the customer.

A quote is quote, assuming it was actually agreed. You need to take it on the chin this time.

 

[Gyumri]

The OP should not start the work. The OP has miscalculated and the client has been inconvenienced - but the client has suffered no economic loss and so would have nothing to claim as damages.

 

[Newchodge]

The OP should not start the work. The OP has miscalculated and the client has been inconvenienced - but the client has suffered no economic loss and so would have nothing to claim as damages.

You have obviously studied contract law.

 

[Gyumri]

You have obviously studied contract law.

Only for about 12 years. The client can't claim damages in lieu of specific performance and if he tried a judge would most likely award £1 in damages for having been troubled by the claim!

And I wouldn't try and force a landscape gardener to work on my garden knowing that he has miscalculated and would be making a loss. Would you?

 

[Newchodge]

Only for about 12 years. The client can't claim damages in lieu of specific performance and if he tried a judge would most likely award £1 in damages for having been troubled by the claim!

And I wouldn't try and force a landscape gardener to work on my garden knowing that he has miscalculated and would be making a loss. Would you?

Why can't the client ask the OP to complete the contract and, when he does not do so, pay someone else to do the work and claim damages for the excess costs he incurred?

 

[NickGrogan]

In the meantime the customer had called me back to make some alterations to the quote,

sent them an updated quote, along with the extra work they required.

The client accepted a quote and then asked for alterations, rendering the previous quote null, which means it can be ignored.

(a quotation is binding, being a fixed price offer which cannot be changed once accepted by the customer – even if you have to carry out more work than was originally envisaged, unless the customer changes the amount/type of work required or you discover something completely outside of the scope of what was agreed. - https://www.disputeresolutionombuds...imate-and-a-quotation-and-why-is-it-important)

They then received a NEW quote, including the extra work (and VAT), which they can accept or decline.

If they accept, there would be a binding contract, and work should go ahead.

The OP can withdraw the quote before it is accepted, which is probably a good idea.

 

[Newchodge]

The client accepted a quote and then asked for alterations, rendering the previous quote null, which means it can be ignored.

(a quotation is binding, being a fixed price offer which cannot be changed once accepted by the customer – even if you have to carry out more work than was originally envisaged, unless the customer changes the amount/type of work required or you discover something completely outside of the scope of what was agreed. - https://www.disputeresolutionombuds...imate-and-a-quotation-and-why-is-it-important)

They then received a NEW quote, including the extra work (and VAT), which they can accept or decline.

If they accept, there would be a binding contract, and work should go ahead.

The OP can withdraw the quote before it is accepted, which is probably a good idea.

I agree, except there is a gap in the OP's description. Was the amended work quote sent and accepted before the VAT issue, or has the amended work quote never been accepted?

 

[NickGrogan]

Why can't the client ask the OP to complete the contract and, when he does not do so, pay someone else to do the work and claim damages for the excess costs he incurred?

If I asked you for a quote to deal with 1 employment issue and I accepted it and then said, can you deal with these other 5 issues as well for the same price, would you accept it? Could I sue you if you didn't?

 

[NickGrogan]

I agree, except there is a gap in the OP's description. Was the amended work quote sent and accepted before the VAT issue, or has the amended work quote never been accepted?

I contacted my customer to let them know that I would now have to legally charge VAT and sent them an updated quote, along with the extra work they required.

The OP says he sent VAT notification and extra work quote at the same time.

If its been accepted, they've accepted the VAT, if not he should withdraw the quote.

 

[Newchodge]

If I asked you for a quote to deal with 1 employment issue and I accepted it and then said, can you deal with these other 5 issues as well for the same price, would you accept it? Could I sue you if you didn't?

No. My response was to Gyumri and is preducated on there beng a valid offer and acceptance of the quote for all the work.

 

[Newchodge]

The OP says he sent VAT notification and extra work quote at the same time.

If its been accepted, they've accepted the VAT, if not he should withdraw the quote.

He also said

In the meantime the customer had called me back to make some alterations to the quote, which I did.

 

[DontAsk]

What the OP actually said was

In the meantime the customer had called me back to make some alterations to the quote, which I did.

So there's the new quote, before he's VAT registered.

However once I got my VAT number and everything was up and running I contacted my customer to let them know that I would now have to legally charge VAT and sent them an updated quote, along with the extra work they required.

So there's a second updated quote.

If the first update was accepted then they are liable to complete the work as per the updated, agreed, quote.

If the first update was never accepted then the customer can whistle.

In either case, the second update is irrelevant.

 

[fisicx]

And I wouldn't try and force a landscape gardener to work on my garden knowing that he has miscalculated and would be making a loss. Would you?

Only if you knew they were making a loss. We had a builder quote for work. We accepted, they started then realised they had got it wrong and asked for another £600 in labour costs. We couldn’t afford the increase.

In this thread the amended quote was accepted. Adding 20% to the quote to cover VAT isn’t accepted. Which means the accepted amended quote still stands.

 

[Ozzy]

Hi @Enaver
Lots of discussion here on your question, there is a very useful Q&A on AccountingWEB that covers this and also walks through the scenarios for you.

The pertinent part is;

2. If quote provided prior to registration but work commenced after vat registration, the amount quoted would have to become the vat inclusive amount (client makes a loss on job).

Normally yes unless the customer agrees to pay additional VAT, or the quote states that amounts are VAT exclusive.

A note for anyone reading this in the future it is important on quotes to always state something along the lines of; quote excludes VAT which my payable, etc.

The reality is that you cannot afford to absorb the VAT, and you are not prepared to break the law. You can make this solicitor's life more difficult than they can make yours if they try to force this on you. As covered above, a quote is is legally binding but an estimate is not. Even if they made some changes, if these are additions over and above then those are separate but if they fundamentally changed the scope fo works rending the original quote invalid then it is null and void so all good.

Having said that, I like @IanSuth suggestion above and move on. The reality of this ever going any further is very slim, and you could lose a lot of time and go round in circles on this. I suggest just move on and close it off. I'd also suggest you do Estimates from now on, not quotes

 

[IanSuth]

That's not what the customer sees. They see the OP taking 20% extra, compared to the original quote.

That was the point in part of my letter - you are hand holding them to see it is not you taking more money it is the govt taking all the extra £ and their rules meaning it has to be that way - they can still grumble but the blame has been slopey shouldered towards hmrc

 

[Gyumri]

We accepted, they started then realised they had got it wrong and asked for another £600 in labour costs.

That's a different scenario. The landscape gardener hasn't started any work and is not trying to pull a fast one on the client.

 

[DontAsk]

That was the point in part of my letter - you are hand holding them to see it is not you taking more money it is the govt taking all the extra £ and their rules meaning it has to be that way - they can still grumble

They can insist!

 

[NickGrogan]

A lot depends on the actual wording of the quote and what the client has asked for and when, unfortunately we don't have that.

One thing that I'd recommend adding to any quotes of this kind is the line E & OM or Errors and omissions excepted

This basically means that if I've got something wrong, I can change this quote even after you've accepted it.

Important if you've forgotten something like having enough labour, an important part or VAT.

 

[MikeJ]

A note for anyone reading this in the future it is important on quotes to always state something along the lines of; quote excludes VAT which my payable, etc.

From memory, you can't exclude VAT unless it's a B2B contract. You have to state what the final total is. You can state what the VAT rate is, and show how it makes the final total.

 

[MikeJ]

One thing that I'd recommend adding to any quotes of this kind is the line E & OM or Errors and omissions excepted

This basically means that if I've got something wrong, I can change this quote even after you've accepted it.

Important if you've forgotten something like having enough labour, an important part or VAT.

That can't be right? You can't quote for something, be in contract, and then decide you want to charge more just because you've screwed up?

 

[NickGrogan]

They can insist!

If I call a plumber they give a quote and then don't turn up can I sue them?

Not really.

I can understand you can sue someone for doing a bad job, but not for not doing the job in the first place.

 

[NickGrogan]

That can't be right? You can't quote for something, be in contract, and then decide you want to charge more just because you've screwed up?

You can if you have the words Errors and omissions excepted on the quote.

If you're quoting for anything, it should be on there.

 

[MikeJ]

You can if you have the words Errors and omissions excepted on the quote.

If you're quoting for anything, it should be on there.

That's just not correct. Basic contract law wouldn't allow this.

 

[MikeJ]

If I call a plumber they give a quote and then don't turn up can I sue them?

Not really.

I can understand you can sue someone for doing a bad job, but not for not doing the job in the first place.

Yes you can. Whether it's worthwhile or not is a different matter. And you'd need to have a contract that states that they're turning up at a certain time, and that time is of the essence.

 

[Paul Kelly ICHYB]

And you'd need to have a contract that states that they're turning up at a certain time, and that time is of the essence.

Would you get that when you call an emergency plumber?

 

[DontAsk]

If I call a plumber they give a quote and then don't turn up can I sue them?

Not really.

I can understand you can sue someone for doing a bad job, but not for not doing the job in the first place.

Maybe, maybe not. Did they turn up later? As always, the devil is in the detail. You can hold then to the contract.

 

[MikeJ]

Nobody said emergency. We're far enough off the point of this thread already.