Architect working on % fee - revised invoice / but VAT registered in-between!

[bobpies]

So this is a tricky one,

Just by way of introduction - I'm a long time reader on these forums but this is the first time I've needed to actually chime in, so apologies for coming straight in with a question

I am doing a house extension and i employed an architect to work on the plans. When I hired him he was not VAT registered and we signed a contract that he would receive 9% in fees of the total cost of the build.

We worked out the initial budget of 150k as an estimate and so was able to deduce how much I was likely to end up paying in the end. Things are broken into stages, A, B, C, D etc. and to date, I have paid for stages A to D based on the cost estimate of 150k.
These invoices for stages A - D were invoiced with no VAT as he was not VAT registered at the time of completing the work / nor at the time of invoicing for the work.

Now, since then he has become VAT registered. Also since then, the cost estimate of the build has increased to 250k - So the money I paid for stages A - D are now, in fact, short of the actual amount required for stages A - D because of the % scale.

To try to be as clear as possible

@150k cost estimate stages A - D cost = £4,725
@250k cost estimate stages A - D cost = £7,875

Now he invoiced me for stages A to D when he was NOT VAT registered and I paid for those services, however, as it's a percentage and it fluctuates with the cost, he has re-invoiced me for the now shortfall in this area, but crucially has invoiced + VAT.

My argument here is that even though he is now VAT registered and must charge VAT - the work that he did in stages A to D were done before he was VAT registered. So where does this leave me? Is he right to be charging VAT here? It doesn't feel right that i should have to pay VAT because of a revised invoice on work completed and invoiced before he was VAT registered?

Hopefully someone can help me out with this one!

[jmo21]

I've no idea what the answer is, but that sounds like quite a pickle, and a massive misunderstanding on someone's part (yours?). I would have thought they he would have told you before you instructed him on the extra £100k worth of work that he was now charging VAT.

Would it not have made more sense to have made the new work phases E-G or whatever, totally separate, which would have avoided this?

[Darren at Fox-Bartfield]

VAT

You may find this link useful bob (link)

I'm presuming the property isn't exempt? The tax point is the key issue, if you look at the link the tax point is the earlier of payment or issue of invoice. So on the face of it, looks like the initial payment is the tax point.

There are however other instances depending on the wording of the contract and basis for payment which are discussed in the link above. I'd be inclined to go with the payment/invoice date tax point which we've seen on some construction clients as being the norm. This would mean paying only VAT on the £100k uplift in costs.

At what point did the £150k building cost go up to £250k?

[bobpies]

You may find this link useful bob (link)

I'm presuming the property isn't exempt? The tax point is the key issue, if you look at the link the tax point is the earlier of payment or issue of invoice. So on the face of it, looks like the initial payment is the tax point.

There are however other instances depending on the wording of the contract and basis for payment which are discussed in the link above. I'd be inclined to go with the payment/invoice date tax point which we've seen on some construction clients as being the norm. This would mean paying only VAT on the £100k uplift in costs.

At what point did the £150k building cost go up to £250k?

He is only charging VAT on the difference of the payments, so for the extra £3,125 so yes, VAT is only being charged on the 100k uplift. However, my point i guess is that, he hasn't done any more work on this area since becoming VAT registered, the work was already done (and paid for) but the price has now been revised, and now includes VAT.

I've no idea what the answer is, but that sounds like quite a pickle, and a massive misunderstanding on someone's part (yours?). I would have thought they he would have told you before you instructed him on the extra £100k worth of work that he was now charging VAT.

Would it not have made more sense to have made the new work phases E-G or whatever, totally separate, which would have avoided this?

He did instruct me that he had become VAT registered at a certain date yes, but that date was after parts A to D were completed and invoiced, surely its not my problem that he invoiced based on the wrong cost estimate? I would have paid it based on 250k at the time, but he didn't and now i'm liable for the VAT?

[Darren at Fox-Bartfield]

Contract

What does your contract state? Is it % inclusive of VAT or % plus VAT?

Would be the same rules for any retentions.

[bobpies]

What does your contract state? Is it % inclusive of VAT or % plus VAT?

Would be the same rules for any retentions.

Contract states,

VAT will be 0% rated for this project on fees and expenses; if this changes during the course of the project you will be notified in due course

*He did then notify me of becoming VAT registered, but as i say - it was after invoicing and paying for parts A to D

[jmo21]

He did instruct me that he had become VAT registered at a certain date yes, but that date was after parts A to D were completed and invoiced, surely its not my problem that he invoiced based on the wrong cost estimate? I would have paid it based on 250k at the time, but he didn't and now i'm liable for the VAT?

This is still very unclear to me.

So he invoiced for A-D on the original £150k even though he knew it was going up to £250k? I presume he was having to do more work as well?

Why did the cost go up? if you requested more things (to the tune of £100k), meaning more work for the architect?

[bobpies]

This is still very unclear to me.

So he invoiced for A-D on the original £150k even though he knew it was going up to £250k? I presume he was having to do more work as well?

Why did the cost go up? if you requested more things (to the tune of £100k), meaning more work for the architect?

original budget was 150k, he drew up plans and we essentially turned round and said no we want it much bigger - at which point he said, it will cost much more. we agreed this was acceptable and we continued on.

his invoices from A to D were all based on 150k for some reason. now that we are at building control phase - he requested a more firm revision of the estimated costs from the QS - which came out at 250k.
So he charged be for part E + VAT. which is fine, but then he also went back to get the extra cash from A - D, which is fine... but now these parts are plus VAT, which i don't see as fine

[eek]

original budget was 150k, he drew up plans and we essentially turned round and said no we want it much bigger - at which point he said, it will cost much more. we agreed this was acceptable and we continued on.

his invoices from A to D were all based on 150k for some reason. now that we are at building control phase - he requested a more firm revision of the estimated costs from the QS - which came out at 250k.
So he charged be for part E + VAT. which is fine, but then he also went back to get the extra cash from A - D, which is fine... but now these parts are plus VAT, which i don't see as fine

Surely its just the extra part of A to D that is + VAT not the work bit you've already paid for.

For instance lets assume you've already paid him £3000 and he is charging you another £1000 on sections A to D due to the higher project size. As that is being billed after he registered for VAT that £1000 is + VAT because from 1/7/2016 say every invoice he sends out has to have 20% VAT added to it.

Now if he is trying to charge VAT on the first £3000 than I can understand your annoyance but I very much doubt he is....

[bobpies]

Surely its just the extra part of A to D that is + VAT not the work bit you've already paid for.

For instance lets assume you've already paid him £3000 and he is charging you another £1000 on sections A to D due to the higher project size. As that is being billed after he registered for VAT that £1000 is + VAT because from 1/7/2016 say every invoice he sends out has to have 20% VAT added to it.

Now if he is trying to charge VAT on the first £3000 than I can understand your annoyance but I very much doubt he is....

Yes he is only charging on the £1000 in this example. However hes not invoicing for new work, he is essentially amending an old incorrect invoice.

however, i think we have the answer from Darren at DynamoAccounts

Had a look at the guidance (Link) and if you look at Section 23, it details the tax point rules. So the tax point has already been created when he did the initial invoice. If he then chooses to reissue those invoices on that date with the corrected figures (apportioning the new £250k as opposed to £150k) then this looks like would bypass the VAT requirement.

The tax point rule being that the tax point is the earlier of the invoice date or payment. You've already received the 4 invoices, just need amending with the corrected figures.