Civil Engineering Reference
In-Depth Information
19.1.13 Single payment contracts
If a building contract provides for a single payment, then the normal tax point rules
contained in section 6 VATA 1994 will apply to that payment. Section 6 provides that
abasictaxpointoccurs:
•
inrelationtoasupplyofgoods,whenthosegoodsaremadeavailable;and
•
in relation to a supply of services, when the supply is completed.
The basic tax point rule can be displaced, and an actual tax point created, if the person
making the supply issues an invoice before the basic tax point date, or payment is
received. An actual tax point is also created if an invoice is issued within 14 days of
the date of the supply being made.
The problem with single payment building contracts from a VAT perspective is that
most building contracts relate to the provision of a mixture of goods and services,
for example, the provision of wood (goods) and the provision of carpentry services
(services).Inthatexamplethetaxpointinrelationtothewoodwouldariseatthe
point when the wood is delivered, or made available, i.e. when it is left on site, but in
relationtothecarpentryservicesthebasictaxpointwouldnotoccuruntiltheworks
have been completed, which will usually be at the point of practical completion.
If a VAT invoice is issued more than 14 days after the occurrence of the basic tax
point, then the time at which VAT must be accounted for is determined by reference
to the basic tax point. It is possible to obtain HMRC's consent to invoices being issued
morethan14daysatertheoccurrenceofthebasictaxpointandHMRCwillnormally
accept this if the invoice is issued within a month.
The fact that the basic tax point rules mean that a contractor can end up having
to account for VAT prior to payment being received for the goods/services provided,
is one of the reasons that larger construction contracts normally provide for staged
payments and the use of either authenticated receipts or a self-billing procedure.
19.1.14 Retention under a single payment contract
Where a single payment contract provides for an amount to be retained from pay-
ment under a contract 'pending full and satisfactory performance of the contract',
then Regulation 89 of the VAT Regulations provides that the time of supply in rela-
tion to the retention payment is delayed until payment is received or a VAT invoice is
issued, whichever is earlier. Regulation 89 of the VAT Regulations does not apply to
staged payment contracts.
he VAT liability for retention payments follows the status of the main contract (i.e.
if supplies under the main contract are zero-rated, any retention payments will also
be zero-rated).
19.1.15 Stage payment contracts
Whereabuildingcontractprovidesforstagepaymentstobemade,thenRegulation93
of the VAT Regulations provides that the basic and actual tax point rules contained
