You need to look at ther terms of the contract between the building company and their client.

Under what terms does Buildco get it back from SW. Under what terms buildco give it back to the client.

It really doesnt sound like it should be a charge that is passed on.

If you really think it is - you need to have a look at the regulation to decide if this is a re-charge or a re-imbursement charge.

On what basis?

Hi Jenny
So you havent taken a look at what I suggested?

With respect, we cannot help without full facts and at the mo we dont have any facts whatsover apart from the fact that your client is VAT registered.

So - Im guessing....your client has entered into a performance guarantee with the water authority?

So - why is your client's client being charged for the deposit? Will they get the deposit back if the builder performs in line with said guarantee and builder gets deposit back from water auth? What happens if said builder makes a mess of the job?

Never take for granted that the correct VAT position is cited on anyone's invoice, including these huge authorities - they often fudge it up (Ive been on the end of many a row with them in the wrong). So first establish if what they are doing is correct (Ive dropped a big hint in there about performance bonds).

Also - note the VAT that an end client is charged doesnt always follow the VAT that the middle client (in this case your builder) has been charged, which is why I dropped a massive hint about disbursements.

Is the end client entering into a performance bond with the water auth? I would imagine not. So would that make it a re-charge? Or a disbursement?

You also need to look at the changed rules re VAT on deposits.

BUT, Im still of the opinion that this charge should NOT be passed on to the client, there is no supply for the 'performance', its merely a cashflow issue. This is why you should check the contracts (albeit of course the contract could be wrong!)

Sorry, Im not being pedantic, this is a fabulous Q but (1) we dont have enough to reply and (2) its a superb development opportunity. Please do provide more info along with your thoughts after having a read up (some citations would be godo when you come back, be great to have a technical discussion!)

Hi Joanne,

I am really sorry that you found my question lacking facts, I am incredibly busy at the moment and do not have the time to go into great detail. I really do appreciate you have taken the time to try and answer my question.

I have 3 pages of information regarding the criteria the builder needs to meet to be issued a refund which is in two stages 80% and 20% involving satisfying the legal agreement/deed of grant of easement/H&S, inspections etc. The contract involving the performance deposit is clearly between the building company and Southern Water. 

I know the builder sends out a standard contract to customers and I also know a verbal agreement took place between the customer and builder regarding the performance deposit, whereby the customer agreed to finance the deposit until the buildings works had been completed which is next week. The builder will then be refunding the deposit and holding the liability himself until Southern Water refunds.  The builder paid the whole bill to Southern Water also back in January.

The customer paid for the deposit back in January after an invoice including VAT was sent out by the builder, I took over the accounts in April so was not party to the arrangements. Had I been asked I would have recommended that the builder paid the deposit as it his duty to satisfy the conditions, not the customer as the performance deposit agreement is between the builder and Southern Water. I am aware of the guidelines on disbursements and recharges but felt that this did not come into play because of the above.

I based my question on the scenario that the invoice had not yet been sent to keep it simple.

I would love to have a technical discussion with you at some point, just when I have the time.

Anyway I have taken the easy way out and passed the issue onto the accountant!

Thanks for your input.

Jenny.

retsub35 wrote:

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 I am incredibly busy at the moment and do not have the time to go into great detail.         I really do appreciate you have taken the time to try and answer my question.

I based my question on the scenario that the invoice had not yet been sent to keep it simple.      

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 Tax - not simple. Always need more facts. 

People often think there is such a thing as a generic tax question, but Joanne, despite being a busy lady,  is particularly good at teasing out the facts that are often overlooked/not mentioned by posters but are critically needed to provide a response.