Beat the January VAT price hikes

John_Pierpoint

It is not the builder who is charging you extra it is the government. Probably go up to 20% after the election, at the same time as the income taxes get increased..

AP

JDavis wrote: »

I have a similar problem with a builder. In July we agreed a contract price inclusive of VAT for an extension. We paid a deposit at the time. The work did not commence until January this year. They are now charging us for the extra VAT which is not insignificant. I phoned HMRC who said they were in their rights to do this but I cant find anything written down about it on their website. I'm not sure the person I spoke to really knew the answer. Where can I get legal advice on this?

You agreed a contract price inclusive of VAT at the rate that was in force at the time. So if the rate of VAT goes up, you will have to pay the extra. Unless that is you had paid the contract price in full on or before 31/12/2009, then the payment would have created a tax point at 15% and the builder could not have charged you the extra, even though he does not send you the bill until January.

However, in your case, you can only be charged the extra VAT on the outstanding balance, i.e. not including the deposit which you had paid in July 2009. When you paid the deposit in July 2009, that itself had created a tax point at 15% and so the 17.5% VAT rate only applies to the balance.

e.g. You had agreed a contract price of say, £5,750 in July 2009 inclusive of VAT and you paid a £1,000 deposit at the time. This actually represents £5,000 net plus VAT of £750 (at 15%). Your deposit of £1,000 is made up of £869.57 net plus VAT of £130.43 (also at 15%).

This leaves a net balance of £5,000 minus £869.57 = £4,130.43 before VAT. The builder will now have to add 17.5% VAT on this net balance, which is £722.83, making it £4,853.26 remains payable. So the total amount that you have to pay altogether, including the £1,000 deposit paid last year, has become £5,853.26 and you are worse off by £103.26 being the extra VAT due on the balance.