Holiday chalet - query on 20% VAT electricity standing charge by site owner.

pochase

Wouldn't it be to the advantage of the site owner to only charge 5% VAT if that is legal?

The VAT they charge is paid over to the receiver, so they should not care if they charge 5% or 20%, they have no profit from charging the higher rate.

If they "buy" £100 plus 20% VAT, they can deduct the £20 from their VAT. If they resell it for £100 plus 5% VAT they have to pay the £5 VAT.  So for me it looks like they are £15 better off doing this than if they are billing the 20% VAT.

MattMattMattUK

pochase said:

Wouldn't it be to the advantage of the site owner to only charge 5% VAT if that is legal?

The VAT they charge is paid over to the receiver, so they should not care if they charge 5% or 20%, they have no profit from charging the higher rate.

If they "buy" £100 plus 20% VAT, they can deduct the £20 from their VAT. If they resell it for £100 plus 5% VAT they have to pay the £5 VAT.  So for me it looks like they are £15 better off doing this than if they are billing the 20% VAT.

It makes no difference to the site owner either way in terms of profit and loss. There may well be a slight benefit to cash flow depending on their billing cycles, but in reality no impact either way. 

TJM22

Many thanks to all who replied to my post.

The site charges bill arrived on December 23rd, as usual.

We have been charged 20% VAT on our portion of the standing charge - which is the sites standing charge divided by 171 chalet owners.

Along with it came an example copy of one of the sites electric bills which shows that they are being charged 20% VAT by their electricity suppliers.

So supposedly they are paying business rate VAT and just passing it on to us.