Are we liable to pay VAT and 8.5 % interest?

GDB2222

Blue_Max wrote: »

Hi GDB,
We did not know that VAT was payable. Did not even know that the contractor is VAT registered.
Don't think it matters but although a non-trading and non-profit making company, we are a limited company, but not VAT registered.

Warwick Estates, the managing agent, got three quotes for the balcony works.
We chose one of them based on price, spec and their Checkatrade membership.

So, your managing agent put the contract out to tender, and presumably they notified the successful contractor and instructed him to start work? In other words, although your company signed the contract, most of the day to day contact the contractor had was with your managing agent? Is that correct?

If so, it was perfectly reasonable for the contractor to send his invoices to your agent. The agent ought to have passed them on to you for payment, and if their failure to do that has resulted in an interest charge that is a matter for you to sort out with the agent.

Likewise, if the agent was well aware that VAT would be added to the bill at the time the contract was agreed, it is perfectly reasonable for the contractor to expect his VAT to be paid. Again, the failure of the agent to inform you of this is a matter between you and the agent, and it does not affect the contractor.

You might have a case against the agent over the VAT, as it would be perfectly possible to find a contractor at this sort of price range who is not VAT registered. Of course, the agent may argue that it is specialised work that requires a fairly substantial company. the point I am making is that the mere fact the agent did not inform you about the VAT does not necessarily mean that you can expect the agent to indemnify you against it. You can only expect the agent to indemnify you against losses, i.e. if you would have chosen a non-VAT contractor given the option.

I suggest that, as a starting point, you check whether either of the other contractors who quoted is VAT registered.

The managing agent seems to have made a bit of a mess of dealing with this. Are you proposing to continue with the same agent? If so, I suggest a bit of horse trading with the agent would be a good way of sorting this out.

GDB2222

Blue_Max wrote: »

So the builder had no obligation to attach terms of the JCT to the contract?30 day dispute period or any other period was not in the contract.
Where are we supposed to have obtained these in detail?

Are the "standard MW conditions" part of the English Law?

Yes, "standard MW conditions" are effectively part of the English Law. The law does not interfere with the terms of a contract. In your case, the contractor will almost certainly have been given a tender document setting out the scope of the work, and this will almost certainly have included reference to the JCT terms. There is absolutely no requirement to print out a copy and attach them to the contract document.

The contract consists of 4 items: the original tender document prepared by your agents, the JCT terms (if that is what is specified in the tender document), the contractor's quotation in accordance with those, and your company's acceptance of the quotation.. You have to look at all 4 of those in combination.

Blue_Max

antrobus wrote: »

The question relates to a contract between a "building contractor" and a "management company that looks after a block of flats", so it's B2B and so there's no specific requirement to quote VAT inclusive prices.

Advice from the Department for Business, Innovation & Skills however does state that;
In estimates for building work, you should either include VAT in the price indication or, if this is difficult to calculate, indicate with equal prominence the amount or rate of VAT payable in addition to your basic figure.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/31900/10-1312-pricing-practices-guidance-for-traders.pdf

It would be normal for a building contractor to quote a price, and then state that VAT at the prevailing rate will be payable. Failure to mention VAT at all might perusade a court that the contract price should be deemed to be VAT inclusive. Only a real solicitor type person can help you with that one.

30 days? The Limitation Act says six years. (Or five if you're in Scotland.)

It's a general principle of the law of agency, that principles are liable for the defaults of their agents. So if your agent has messed things up and caused the contractor a loss, then you are liable for that loss. Although you can, of course, seek to recover that loss from the agent

Thanks antrobus for an informative reply and the link
It was not an estimate or a quote. It was a signed contract. Should they not have stated the contract sum is 'plus VAT' or 'ex VAT'.
Or anything else to indicate that VAT will be charged in addition to the contract sum?

Yes, we may have a claim against Warwick Estates, the agent.
They represented us at the LVT last year lost the case!
Plus many accounting errors. These are issues we are planning to complain to RICS at a future date.

tim123456789

Blue_Max wrote: »

Hi Tim,
I forgot to mention in the OP that our management company, though non-trading and non-profit making, it is a limited company.
So would "acting in the course of a business" apply ?!
Thanks.

No, it shouldn't matter that it's a limited company - it still not acting in the course of business. But that's the point about needing to check case law to see.

Blue_Max

topbargainhunter wrote: »

In order for the contracter to charge VAT, he must supply a VAT invoice which shows his VAT registration number. Not just a draft final account. Have you had an official invoice?

The Building Contract signed by both parties did not show VAT or VAT number. It was dated 7 March 2012.
The three invoices dated 5 July, 15 Aug and 6 Sep 2012. claimed VAT on top of the original contract sum.
The managing agent says that he was not aware of any VAT liability.
Not mentioning VAT in the contract and then claiming it at a later date, does'nt look fair to me!
Are we liable for VAT ?

GDB2222

Blue_Max wrote: »

The Building Contract signed by both parties did not show VAT or VAT number. It was dated 7 March 2012.
The three invoices dated 5 July, 15 Aug and 6 Sep 2012. claimed VAT on top of the original contract sum.
The managing agent says that he was not aware of any VAT liability.
Not mentioning VAT in the contract and then claiming it at a later date, does'nt look fair to me!
Are we liable for VAT ?

You obviously want the answer that you are not liable, so: You're not liable, but see the disclaimer at the foot of my post.

As I said before, you have to look at all four of the documents: tender, JCT, quotation and acceptance. If you only look at a subset, as you persist in doing, you may make things worse by fighting a claim that you actually have no chance of winning.

Johnandabby

Blue_Max wrote: »

The Building Contract signed by both parties did not show VAT or VAT number. It was dated 7 March 2012.
The three invoices dated 5 July, 15 Aug and 6 Sep 2012. claimed VAT on top of the original contract sum.
The managing agent says that he was not aware of any VAT liability.
Not mentioning VAT in the contract and then claiming it at a later date, does'nt look fair to me!
Are we liable for VAT ?

The managing agent or yourself should have asked about VAT when the quote was received. Don't forget that the contractor pays this money straight to the govt, it's not extra money in their pocket! My understanding (at least how I read any quotes given to our business) is that VAT isn't included unless clearly stated - its the opposite if the quote is given to a private individual, but good practice would be to confirm on all quotes.

Could you register your limited company for VAT and then claim the VAT back? You would have to consider any VAT you would have to add to your invoices to tenants, but this might still be in your benefit if future large repairs are required and you don't have any luck with negotiations with the contractor.

As a business owner myself who spends half my time chasing payment, my sympathy I'm afraid is with the contractor - well within their rights to charge interest on the unpaid debt, and is a tactic we have to resort to to extract payment from some clients. Highlights the problem of using a incompetent third party as well.

Blue_Max

@ Johnandabby. I see that as a business owner your views are based on you sympathy is with the contractor. That is your prerogative. But I am here to find out the legal position. Directors of our management company are unpaid. My financial interest in this issue, based on my shareholding is just 2%.
However, as a director, my primary responsibility is to other leaseholders/shareholders. I need to carryout that responsibility with due diligence and care.

You say, "The managing agent or yourself should have asked about VAT". It seem rather unfair. Is this based in law or your point of view?
All other contractors I have dealt with the past clearly showed VAT in the quotes and the contract.

About your advice "register your limited company for VAT". As a non-trading company, charging VAT on all payments from leaseholders/shareholders and claim back only part of it from the few who charge us VAT, would mean a big loss to us.

After reading post by tim123456789, I downloaded a copy of Payment of Commercial Debts (Interest) Act 1998. From my understanding of that, advise by tim123456789, "Act does not apply to this contract because, on the simplest of viewpoints, the purchaser did not sign the contract whilst "acting in the course of a business" appear to be correct.

@ GDB2222. I assure you that what we are seeking answers that are correct in law. That is the objective. Knowing where we stand in law, we can negotiate with the contractor and if necessary file a defence in court. Hence the reason for my post here!

I agree that it would be misleading to look only look at a subset. As you may have noticed, I have tender, quotation and the Building Contract signed by both the contractor and ourselves. None of these say anything about VAT. Neither us or our managing had any prior knowledge that the contractor was planning to charge us VAT.
JCT is something I do not have. Is it standard document or can the contractor vary it to suit himself? Presuming that it is a standard document, does anyone know if there is anything in it that would give a contractor an automatic right to charge VAT?

All knowledgeable and rational views would be welcome! Thanks.

eddddy

Blue_Max wrote: »

All knowledgeable and rational views would be welcome! Thanks.

Hi Blue_Max

I don't claim to be knowledgeable in this area, but I was intrigued by your question.

Try googling "contract is silent on VAT". The overwhelming consensus seems to be that if the contract is silent on VAT, the contract price is assumed to include VAT.

An example on Ernst and Young's website - it's talking about a related topic, and then concludes with:

.... The outcome of these cases will be of interest in the UK where VAT law states that, if a contract between the parties is silent on VAT, the consideration is taken to be inclusive of any VAT due.

(goto: http://www.ey.com/UK/en/Services/Tax/Midweek-tax-news---2012-08-14 and click on the sub-heading 'Other UK developments')

00ec25

Blue_Max wrote: »

JCT is something I do not have. Is it standard document or can the contractor vary it to suit himself? Presuming that it is a standard document, does anyone know if there is anything in it that would give a contractor an automatic right to charge VAT?

JCT is a standard document and any property professional (ie RICS surveyor) should be able to quote it in their sleep: the JCT Minor Works Contract Conditions, under section 4, states:

4.1 “VAT The Contract Sum is exclusive of VAT and in relation to any payment to the Contractor under this Contract, the Employer shall in addition pay the amount of any VAT properly chargeable in respect of it.”

This CAN be obviated by a signed change (by both parties) to this clause, so the actual contract should be seen/checked to ensure that no change has been contractually entered into.

Condition 4.1 has been a consistent feature of all JCT contracts since their inception (although the condition number and wording may change slightly between differing JCT contracts and issue years).

you must get hold of a copy of the conditions which go with your contract - asking an open forum to give legal advice is not really the best way forward here - you need to pay for professional legal advice. The contractor appears to be a VAT registered business and therefore has to charge VAT, their contractual basis is the fact you (in the form of your agent) signed a standard (unaltered) JCT MW contract. The fact that your managing company did not know the nature of the contract is not the fault of the contractor, it is an issue of communications between you and Warwick, your agent

here is an OLD version of a JCT MW contract, you may well be bound by the new (2011) version (which is what I quoted above) but the payment schedule will be fundamentally identical - the contract sum on page 4 makes no reference to VAT because that is covered in section 4.1 on page 24. If you really are bound by a JCT contract then this is all very standard stuff and the whole point of JCT is that both parties are governed by industry standard terms