Possible VAT scam

The reduction in VAT rate on energy saving products has made me ponder that there could be a bit of a scam possibility here. And one I am not sure is even illegal!

These products are the type of thing that have long lead times and so it is very likely that any installers have a lot of "in flight" orders. Orders where the work (supply) will be after 1st April, but the order has already been placed and deposits paid. They are also the sort of order that is likely to be many thousands of pounds of work.

These orders are where the customer has been quoted a price, and as a consumer they expect that to be the price they pay in full. The fact that there is a VAT element (in this case 5%) should not really be a factor for such consumers.

As the deposit has been paid before 1st April, all of these will have a tax point that makes the work all 5% VAT, not the 0% VAT that applies after 1st April. This is because a payment brings the tax point back to when the payment was made even if the supply or invoice is later.

The fun starts with the special rules for VAT rate changes. These give the supplier the choice to change the tax point to the date of supply - i.e. move from the payment (before 1st April) to the work being done (after 1st April). This would allow the VAT rate to change to 0%. In my case this would save me over £1000. All they need to do is credit the 5% VAT invoice and issue a new 0% VAT invoice, and so make the job cheaper.

The issue is that this is the supplier's choice, not the customer's. They can choose not to. If the supplier says no, there is not much you can do, especially if you have in fact paid for the work already.

Bear in mind the the supplier does not gain or lose by doing this, they have to pay whatever VAT they charged to HMRC. If that changes from 5% to 0% and saves the customer money, the supplier does not lose out. So why would the supplier refuse to do that?

So where is the scam?

What if a supplier says they won't reduce the price, and you end up paying what was agreed (the inclusive price). Customer has not "lost out", they are paying what was agreed. No fraud, or scam there.

What if the supplier then decides to apply the special VAT rate change rules, credits the original 5% VAT invoice, and reissues for the same total inclusive amount at 0% VAT. Again, this is within the VAT rules. They can elect to apply the supply date as the tax point when a VAT rate changes.

Now, the suppler gains the VAT they would have charged, no longer having to pay it to HMRC.

HMRC have not lost out, as this is according to the VAT rules and new VAT rate.

Customer has not lost out, as they have paid the agreed total amount - what part of that is VAT does not impact them financially.

As the customer is a consumer, the supplier does not even have to issue a VAT invoice, so they don't have to issue the credit note and new invoice that was created to change the VAT rate.

So, in my non lawyer view, this is not even illegal in any way. If nobody is losing out there is no fraud involved.

Even for a small supplier this could easily make the tens of thousands of pounds. For some big national supplier this could be well worth doing.

The only way this could be an issue, perhaps, is where the supplier has provided a quote or invoice with the VAT shown (which they don't have to for a consumer). They are in effect stating an amount of what was paid is a tax. If that is untrue, maybe that is fraud as they have gained from a lie... If they did not issue a VAT quote/invoice, then charging to same agreed total amount is probably quite valid.

Lucky

I have been rather lucky that I am finally getting air-con and solar sorted, both with installation dates in April, so I can actually benefit for this rate cut! I was gobsmacked to find anything personally beneficial from this government shit show to be honest. And after a little to and fro, I have confirmation from both suppliers that they understand the rules on the VAT rate change and can adjust my bill accordingly.

VAT on energy products

There is a low (5%) rate on some energy saving products - the rules are complex to say the least and mainly relate to installers, and even the ratio of labour and parts matters. Heck, apparently, it matters if the customer is over 60 (which my wife is, so yay!).

The chancellor reduced VAT to 0% from 5% from 1st April with very little notice.

On a political point, this is batshit insane - the reduction will not help a single person that is struggling to pay their energy bills. You need to have the capital (or be able to get a loan) to install solar, etc, which won't pay back for years. That is no help to anyone on the bread line whatsoever. Even then, the result of this may simply be installers increasing prices and no saving to the customers at all!

The way the rules work means that even those that can manage a small amount now and then to make a DIY solar install and save some money are not helped as they end up paying the normal 20% VAT for the kit.

So this brings up VAT rules, and the rate that applies. It all comes down to the tax point - the date that applies for VAT purposes. This dictates which VAT rate applies when VAT rates change.

We saw a lot of this and some detailed discussion when VAT rates increased last time. This is the first time I personally have seen a decrease, and it raises some interesting points.

The tax point is based on several things. The simplest is the invoice date. But if there is a payment before that, or the work was done more than a few weeks before that, then the tax point moves back to that point. This means the tax point can be moved earlier just by raising an invoice or making a payment, even with long payment terms, but the options to move it later are limited.

However, good news!

There are special rules for VAT rate changes!

These mean that the usual rules that pull back the tax point to the earlier invoice or payment do not have to apply. If the supply is on/after 1st April then the supplier can use the date of supply as the tax point and so charge 0% VAT.

This is down to the supplier. All they have to do is credit note the 5% invoice and issue a new 0% invoice. Simple paperwork exercise.