Tax problems!!

Stevies_problems_2

We bought a house in Feb 2008 for £249,999.
We agreed to pay the estate agency fees on behalf of the vendors of £3,750.

OH was an etate agent there and for three months forfeited his salary to pay off the loan.

We have been contacted yesterday by the estate agency (who OH no longer works for) to say that an invoice was never raised and that not only do we owe VAT on the transaction of £656.25, but also that the loan should have been taken from OH net salary (it was taken from gross) and therefore we owe an additional £825 on the loan!

We have also now been told that as we paid the fees on the purchase, this pushes us over the stamp duty limit and therefore we also owe £5k extra stamp duty.

This is obviously a nightmare situation. Can anyone help me out with this? Is there anything we can mitigate?

Stevies_problems_2

I would also like to add that it was a director of the company who agreed to the loan of £3,750 (and the deduction from his salary over three months), but another director who is saying we owe all this extra money.

The first director also negotiated the purchase on our behalf, not OH.

Cannon_Fodder

What did your solicitor say at the time? What was put in writing about the Fees/loan?

Just because the Director did the negotiating, doesn't mean you had to accept the deal offered.

I doubt the Tax-man will let you off the Stamp Duty. see http://www.guardian.co.uk/money/2009/jul/01/stamp-duty-avoidance
"HMRC told me that however payment is made, paying the seller's estate agent fees means there is a "transfer of economic value from buyer to the seller" and this counts as part of the total amount of the transaction when calculating stamp duty."

Whether the EA can pursure you for the balance depends on the paperwork.

Stevies_problems_2

There is also the issue of the VAT which they say we are liable for. I have found that VAT invoices need to be issued within 30 days (to a registered person) - are there any rules about unregistered people?

James,_Oxford

You have unwittingly pushed the purchase over the £250k SDLT threshold.

Your only hope is to be able to show that the payment of the vendors costs was made in return for something other than the sale of the property to you. This is not easy. Sometimes it is possible to make an argument that the vendor agrees to negotiate with you in return for you picking up his estate agent's or legal costs. However, this usually requires you to agree to make the payment irrespective of the sale actually completing.

In relation to the actual payment of the estate agent's fees, you agreed to pick up the bill, which is the VAT inclusive amount of £4,406. It is the estate agent's responsibility to issue the VAT invoice to the vendors, you just get a copy. You can't claim the VAT back because you won't be VAT registered and the services were not made to you. If you havent paid enough you are still obliged to pay the balance.

Sorry its all a bit depressing.

TM1976

Everything they say here is correct from a tax point of view.

Your OH paid the fees from his salary, which is taxable - so either it comes from his net salary or it is a taxable benefit in kind. As he actually forfieted his salary I would say taking it from the net is correct.

Estate agent's fees are VATable, VAT is paid by the customer - so either you or the vendors should pay this.

Fees and tax are part of stamp duty cost of the property, which you paid as described above, so you have to pay it.

All of this tax is due.

Best option is to see if the estate agent will offer you a discount/staff rate on the fees as this will bring the tax down.

Cannon_Fodder

One wonders if the OH, being dependant for his job on the Director, has unwittingly fallen foul of a wider scam...one that maybe the other Director is now trying to cover up/avoid criticism over...

Who provided the mortgage? In-house advisor? Who valued the property - a mate of the Director? Was the mortgage App properly completed? Income declarations etc...

If willing to "bend the rules" to defraud the Taxman, what else might the Director be up to?

mel - are you Steve in another ID? While you had £45k debts round your neck, at that time, you can bet the Director didn't - he still got a sale...he would probably have accepted a discount on his fee, equivalent to the VAT, and having an in-house "patsy" did a quick turnover on the house anyway, so it was £3k+ easy money...

Doesn't smell at all right. But you went along with it, so you need to visit your solicitor and tell him the whole story...

JasonLVC

Stevies_problems wrote: »

to say that an invoice was never raised and that not only do we owe VAT on the transaction of £656.25, but also that the loan should have been taken from OH net salary (it was taken from gross) and therefore we owe an additional £825 on the loan!

It is normal for a business selling to an individual to quote prices which are VAT inclusive, thus if an estate agent told me their fees would be £3,750 then I would deem that to be a VAT inclusive fee (£3,191 + £558.51 VAT).

So if the deal wa for £3,750 then that is how much you should pay - which you have already done. The EA can issue you with an invoice if they wish but it'll be for the values I've already broken down.

At this late stage, if they are saying it was VAT exclsuive then they need to be careful. The EA MUST account for VAT in the month the money is received, so if you paid the fees say in Feb 2008 then they should have declared the VAT (whatever the amount) on their VAT return that covered the February period.

Technically what you have described means they took the £3,750 and did nothing with it for a year and a half and are only now declaring the VAT to the VATman. This will be subject to penalties and interest so is another threat you can offer the EA.

Also, the VAT liability is the responsibility of the supplier - if they forget to charge VAT then it is them HMRC will come looking for. If they want you to pay you do not have to. They can take you to court for the VAT but they would have to prove you owe them the money - seeing as they have little in the way of audit trail, you paid them over a year ago and only now they are complaining, I dare say the EA would be laughed out the small claims court.

So I would take the view that you would challenege the EA on these points, reminding them they should have issued an invoice in Feb08 and declared VAT at that time - now exposing them to penalty and interest for witholding the VAT from the VATman for so long.

VAT101 - The suppier sells a service for £100 + £17.50 VAT = £117.50. Whether or not the customer pays the bill, the supplier still has to pay £17.50 to HMRC. So if the EA sent an invoice for £10,000 + £1,750 to a business which then went into liquidation, the EA is out of pocket for his costs (£10,000) plus the £1,750 he has to pay to the VATman as that £1,750 s not his to keep.

Reflecting back to your EA, they have took £3,750 and not paid any VAT over to the VATman (tut, tut). If they are saying you should have paid £4,406 they have still witheld £656.25 (tut, tut) from the VATman as they can't pay it over if they never raised an invoice.

So basically, tell them to get stuffed for the VAT - sorry I cannot help you with the SDLT mater other than to confirm what others have said and that the fee is seen as part of the consideration for the property and so takes you just over the threshold I'm afraid - Is there any recourse to your solcitior or were they not invovled in this aspect?.

Stevies_problems_2

Jimmo - thank you. Your response is invaluable.