Reverse VAT Conundrum.

Robus

As a sub-contractor I receive a phone call from an unknown builder Mr. John Doe requesting a site visit and quotation.
I call to site, quote for the work and show him my C2 card.
He informs me verbally he is a main contractor trading as John Doe Construction Ltd.
The next day I send a crew of my employees to carry out the work agreed.
The day after I write an invoice using reverse VAT @ 0%, I post it to him and enclosed a RCT1 signed by myself (to form a contract), which I understand he will counter sign and post to revenue.
Three weeks later I receive a cheque.
However Mr. Doe was not a principle, he was in fact building the house for himself, he threw the RCT1 in the bin and made no VAT returns to the revenue. The revenue commissioners are now at a loss of the 13.5% vat.
Could I be at fault in any future revenue audit?

Legend100

Well technically yes because you shouldn't really be issuing the invoice until the RCT1 was signed by the principal

The strict view would be that you should regross your receipt (i am assuming you account for vat on a cash receipts basis) and pay the vat to the revenue on the new regrossed amount.

This will obviously have a negative effect on your turnover but i would invoice the client to reclaim the difference that you should have invoiced first day

If the client refuses, you could always warn him that you could report him for wrongly making out to be a principal contractor

barneystinson

Hi OP,

Is there actually a John Doe Construction Ltd? And if so is your John Doe a director of said company? And just to clarify, did you invoice John Doe the individual or John Doe Construction Ltd? And was it the individual or the company who paid you at the end of the day?

The reason for my questions basically being that there's a section in there somewhere (too late at night to be going looking, especially as it may not apply!), that says that a director (or connected person) of a construction company, who personally engages the services of a person who would be a subcontractor if engaged by the company, is actually deemed to be a principal.

It was a couple of years ago that this section was mentioned at a Finance Act update I attended; the guy presenting gave the crazy example of a person who owns a construction company, who wakes up to find a leaking pipe in the middle of the night, and calls in a plumber, well technically in that situation even though its clearly nothing to do with a trade, the strict reading of the legislation is that the director would be liable as a principal and should operate RCT... Crazy, but apparently true (at the time - though it may have been amended since then).

Equally, if you made your invoice out to the company then it wouldn't matter for what purpose you were employed, the company would be a principal; it would be a matter between the company and the director if it was engaged in work on his own house.

Answer my original questions above, and if there is a company, I'll try root out the relevant section so you can have a leg to stand on if you are ever audited. Or maybe someone else more enlightened than me can add something further...?!

Robus

Thanks for the replies, this is a hypothetical argument but an example of what could happen to me or others any day.

Legend100 wrote: »

Well technically yes because you shouldn't really be issuing the invoice until the RCT1 was signed by the principalr

What if the “principal” signed the RCT1 in front of me, gave it to his secretary but never planned to post it to the Director General (and binned it). I have nothing to make me think he is in reality pretending to be a principal, that’s the point, he can pretend, save himself the VAT, I may be at fault but I did no wrong.

barneystinson wrote: »

Hi OP,Is there actually a John Doe Construction Ltd? !

Joe Doe is not real entity. But in the example a person is pretending to be a builder with a title of Joe Doe Ltd. and the cheque is from a personal Joe Doe account.

Yes I made the invoice out to a company but it’s a factious company name used to avoid the VAT on the house Joe is building for himself.
He has lied to me to recieve a 0% Vat invoice, but i remain at fault.
Where did i become the person at fault, I did everything as per a normal principal / sub-contractor RCT contrct with 0% reverse vat invoice transaction.

Robus

barneystinson wrote: »

Hi OP, it would be a matter between the company and the director if it was engaged in work on his own house.

Revenue have said if he was not actually a company (principal) but a self build and i invoiced reverse vat, I am at fault not him.
BUT how was i to know he was in fact not what he said but was infact a self build.

Legend100

Did you take a copy of the RCT1? (side not, you always should!!!)

If you have a copy, then you have proof that he has breached the legislation and that he knowingly made a false claim to you.

Even though you were at fault with the zero per cent invoice, by having the copy of the RCT1, you should have adequate evidence to prove to Revenue that you met all your obligations and I would think you could report the individual therbey ensuring Revenue will go to him to get the vat back directly.

Shane732

Sorry but what's been said in this thread just isn't correct.

You applied the reverse charge mechanism of VAT on the basis that a relevant contract existed. The legislation is interlinked with the RCT legislation. The question of whether a relevant contract existed or not is one of fact - it either did or it didn't.

From the information you provided a relevant contract does not exist.

The mere fact that you sent an RCT1 is irrelevant.

Robus

Shane732 wrote: »

You applied the reverse charge mechanism of VAT on the basis that a relevant contract existed. The legislation is interlinked with the RCT legislation. The question of whether a relevant contract existed or not is one of fact - it either did or it didn't.

Yes you have hit the nail on the head.
I (the sub-contractor) believed an RCT contract was in place as I showed my C2 to the "principle", signed an RCT1, witnessed the "principle" counter sign the RCT1, and understood he posted it to the revenue.
However unknown to me he never posted it, nor was he a principle and thus no RCT contract was in place.
The revenue will not send me confirmation of the receipt of the RCT1 (they only send the subcontractor an advise that a RCT47 was issued when it is on foot of an RCT46A application from the principle).

So back to the problem, the house builder has coned the revenue of the 13.5% vat, he is not a principle, I believe I acted correctly, yet the revenue say I am at fault.
Your thoughts please..

Shane732

Robus wrote: »

Yes you have hit the nail on the head.
I (the sub-contractor) believed an RCT contract was in place as I showed my C2 to the "principle", signed an RCT1, witnessed the "principle" counter sign the RCT1, and understood he posted it to the revenue.
However unknown to me he never posted it, nor was he a principle and thus no RCT contract was in place.
The revenue will not send me confirmation of the receipt of the RCT1 (they only send the subcontractor an advise that a RCT47 was issued when it is on foot of an RCT46A application from the principle).

So back to the problem, the house builder has coned the revenue of the 13.5% vat, he is not a principle, I believe I acted correctly, yet the revenue say I am at fault.
Your thoughts please..

Have the Revenue Commissioners actually picked up on this? How much are we talking about here?

Is this man involved in the construction industry himself?

If the person you did the job for is involved in the construction industry then he is within the scope of RCT in relation to the construction of his own house. In this case it would appear that a relevant contract should exist and therefore you were correct to apply the reverse charge mechanism.

If, however, the person you did the job for in not involved in the construction industry then he is not within the scope of RCT in relation to the construction of his own house. In this case a relevant contract would not exist and you should have charged the appropriate rate of VAT.

What I'm trying to say is that while the Revenue Commissioners deem the RCT1 to be the creation of a "relevant contract" it is actually the facts behind the individual case that create the "contract".

In your OP you mentioned that the person involved was not actually a principle contractor - if this is the case then no relevant contract could have existed regardless of whether he signed the RCT1 or not.

Robus

Shane732 wrote: »

What I'm trying to say is that while the Revenue Commissioners deem the RCT1 to be the creation of a "relevant contract" it is actually the facts behind the individual case that create the "contract".

This I an interesting point and confirm’s that a relevant contract does not exist.
But let me reverse the discussion.
Let’s say I am not a builder but I am building my own house, RCT would not apply, I contact plumbers, electricians, etc, accept their quotes, ask to see their C2, pretend to be a principle, ask for a signed RCT1, counter sign it in front of them and promise to post the RCT1 to the revenue, recieve 0% reverse vat invoices, pay at 0%, throw out the RCT and make no returns, I have saved 13.5% , and the revenue have confirmed the sub-contractor is at fault.
What did the sub-contractor do wrong?

dbran

Hi

There is a revenue briefing i have found at http://www.payeanytime.ie/en/practitioner/tax-briefing/71/relevant-contracts-tax.html which appears to say that if the builder is connected with a company in the construction industry it appears that RCT applies.

There is also a revenue concession that if the work is minor repair, it is less then €20k per annum, RCT does not need to be applied.

Learn something new every day

Kind Regards

Dbran