Discussion
Appear to be payable ex VAT, just curious as to why that is? Related, I work in construction and often have to advise clients on the £number to insert re the damages clause within the contract. A lot of the time it is consultants fees and/or rental costs. VAT is payable on consultants fees though of course but not damages so does that mean that clients "lose" that 20% when looking at what they pay out vs what is paid to them in damages. If so it seems a peculiar situation.
Thanks, TX.
Thanks, TX.
Am i understanding this right ?
Suppose i sign a contract with a supplier with no get out clause, for £1k+vat, so £1200, and i no longer what what ever the contract is for, i still ow £1200, but if i say i am going to break the contract and cancel, and offer £1k in damages to the supplier, then both the supplier and the vat man are happy?
Suppose i sign a contract with a supplier with no get out clause, for £1k+vat, so £1200, and i no longer what what ever the contract is for, i still ow £1200, but if i say i am going to break the contract and cancel, and offer £1k in damages to the supplier, then both the supplier and the vat man are happy?
ging84 said:
Am i understanding this right ?
Suppose i sign a contract with a supplier with no get out clause, for £1k+vat, so £1200, and i no longer what what ever the contract is for, i still ow £1200, but if i say i am going to break the contract and cancel, and offer £1k in damages to the supplier, then both the supplier and the vat man are happy?
I'd think so. Supplier would have to pay the £200 of VAT on supply of goods to HMRC, but wouldn't on damages, because no supply takes place. (You'd need to make sure this isn't somehow classed as a 'service' though)Suppose i sign a contract with a supplier with no get out clause, for £1k+vat, so £1200, and i no longer what what ever the contract is for, i still ow £1200, but if i say i am going to break the contract and cancel, and offer £1k in damages to the supplier, then both the supplier and the vat man are happy?
VAT man is happy because the're been no supply. (Also if you're VAT registered - and contract had completed- you'd just be reclaiming the £200 anyway). VAT is basically a tax on consumers, not businesses (except very small ones).
Breadvan72 said:
The claimant loses nothing as it does not have to pay VAT on the damages. Also, if the claimant is VAT registered then it should not recover VAT on, for example, expert fees, because it can set off that VAT against the VAT paid to it in its trading.
Perhaps me being silly but if the project is delayed the client (an individual not a business) will need to pay the consultant extra fees + VAT and will only recover the LAD's which are ex VAT so surely he is 20% down?TX.
Are you taking about agreed damages, stipulated in a contract? If the agreed damages clause is valid (ie non penal) then the fact that it turns out to be an under estimate is tough luck.
If you have a non agreed damages claim and an element of that is third party fees subject to VAT, then a non VAT registered claimant recovers the VAT. A VAT registered claimant doesn't, as he will set off VAT paid against VAT received when making a VAT return.
If you have a non agreed damages claim and an element of that is third party fees subject to VAT, then a non VAT registered claimant recovers the VAT. A VAT registered claimant doesn't, as he will set off VAT paid against VAT received when making a VAT return.
Yes it is a JCT contract with a LAD clause.
I was under the impression, perhaps wrongly, that when calculating what the LAD's value should be at the pre-contract stage eg a genuine pre-estimate etc (say rental costs and consultants fees) then the fees have to be allowed ex VAT because damages are paid ex VAT. Doing it that way though gives rise to a lower return vs payout if the damages clause is triggered, specifically re the consultants fees and the VAT element. Perhaps it is ok to include VAT on consultants fees when calculating LAD's?
TX.
I was under the impression, perhaps wrongly, that when calculating what the LAD's value should be at the pre-contract stage eg a genuine pre-estimate etc (say rental costs and consultants fees) then the fees have to be allowed ex VAT because damages are paid ex VAT. Doing it that way though gives rise to a lower return vs payout if the damages clause is triggered, specifically re the consultants fees and the VAT element. Perhaps it is ok to include VAT on consultants fees when calculating LAD's?
TX.
If you were going to reclaim the VAT back at some point, you aren't going to lose the VAT element, I would have thought. If it's the other side and it's VAT you would have charged, it's not your loss to claim back. I would calculate excluding the VAT.
As for the LAD clauses, the figures do not have to be extremely precise (so as long as you do not go silly), the amounts simply have to represent what a conscionable potential loss could be in the worst case scenario of the breach.
As for the LAD clauses, the figures do not have to be extremely precise (so as long as you do not go silly), the amounts simply have to represent what a conscionable potential loss could be in the worst case scenario of the breach.
Edited by allergictocheese on Sunday 7th December 11:54
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