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    Unhappy Software Supplier calculates support costs incorrectly - charging VAT on VAT

    I'm disputing an annual invoice for software maintenance - it's the first one I've received, and I reckon they've overcharged me, so I disputed it.

    The annual charge for Support is 22% of the purchase cost of the software, and here's how they work it out:
    1. Add VAT to the Purchase Cost
    2. round up to the nearest 100
    3. calculate 22% of the total
    4. add VAT

    So, I'm paying support costs for the VAT, and a few quid I didn't even spend, then being charged VAT for it - paying VAT on the VAT.

    My question is - does this seem reasonable? I don't think it is, so I've only paid them 22% of the ex-VAT purchase price.

    The supplier is a very large well-known company, and they're not responding to emails, or the dispute case I raised on their billing portal.

  2. #2

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    If they are a UK VAT registered company then whatever they charge you, they have to charge VAT on top of this. You're not paying "VAT on VAT", you're simply paying VAT on their support charge.

    What you are disputing is their method of calculating their support charge. How this is calculated should be in whatever contract/agreement you have with them. What does it say?

  3. #3

    Fingers like lightning


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    Quote Originally Posted by metageek View Post
    I'm disputing an annual invoice for software maintenance - it's the first one I've received, and I reckon they've overcharged me, so I disputed it.

    The annual charge for Support is 22% of the purchase cost of the software, and here's how they work it out:
    1. Add VAT to the Purchase Cost
    2. round up to the nearest 100
    3. calculate 22% of the total
    4. add VAT

    So, I'm paying support costs for the VAT, and a few quid I didn't even spend, then being charged VAT for it - paying VAT on the VAT.

    My question is - does this seem reasonable? I don't think it is, so I've only paid them 22% of the ex-VAT purchase price.

    The supplier is a very large well-known company, and they're not responding to emails, or the dispute case I raised on their billing portal.
    It depends whether 'purchase cost' is defined as the ex-VAT price or the inc-VAT cost. I guess they found a way to say 'support cost is 22%' rather than 'support cost is 27%'.

    Sounds a bit rough of them, to be fair.

  4. #4

    More time posting than coding


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    I think this is pretty common and I had it with a client a few months ago.

    Paid for their hosting with VAT and then when I charged them asked my accountant if I should add VAT again. She said it was up to me. If I didn't then it would be a disbursement (?) but if I wanted to add VAT to a VAT included amount then that was fine. I chose not to.

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    Quote Originally Posted by metageek View Post
    I'm disputing an annual invoice for software maintenance - it's the first one I've received, and I reckon they've overcharged me, so I disputed it.

    The annual charge for Support is 22% of the purchase cost of the software, and here's how they work it out:
    1. Add VAT to the Purchase Cost
    2. round up to the nearest 100
    3. calculate 22% of the total
    4. add VAT

    So, I'm paying support costs for the VAT, and a few quid I didn't even spend, then being charged VAT for it - paying VAT on the VAT.

    My question is - does this seem reasonable? I don't think it is, so I've only paid them 22% of the ex-VAT purchase price.

    The supplier is a very large well-known company, and they're not responding to emails, or the dispute case I raised on their billing portal.
    Does you contract with them state whether the support charge will be 22% of the purchase price with or without VAT? That'd be where I start. If it's ambiguous, meh.
    The greatest trick the devil ever pulled was convincing the world that he didn't exist

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    Nervous Newbie


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    Unhappy

    Quote Originally Posted by TheCyclingProgrammer View Post
    If they are a UK VAT registered company then whatever they charge you, they have to charge VAT on top of this. You're not paying "VAT on VAT", you're simply paying VAT on their support charge.

    What you are disputing is their method of calculating their support charge. How this is calculated should be in whatever contract/agreement you have with them. What does it say?
    I re-read the contract, and it doesn't contain all the words I heard verbally, merely quotes the annnual cost, so contractually I'm stuffed. I'm still waiting for them to respond the dispute case I raised with them, though I think they might believe it's all sorted, as the status is "Closed - Awaiting Responsible". They really do not like communicating.

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