VAT: whose risk?

/ 27 January 2023

Simon Levine

If services are contracted to be provided over a period and the rate of VAT changes in the course of that period, who bears the burden of the increased VAT (or, less likely in the present climate, enjoys the benefit of the reduced VAT)?

It depends.

If a contract is silent as to VAT, any consideration specified in the contract is generally taken to be inclusive of VAT.  If VAT is to be payable by the customer in addition to the stated consideration, the contract must say so.

Thus, if the contract specifies a price of £X with VAT payable in addition, and the rate of VAT increases, so does the price payable by the customer.

On the other hand, if the contract specifies a price of £X inclusive of VAT (or, more to the point, simply £X with no mention of VAT) – as is the case, for example, in some standard domestic building contracts – and the rate of VAT increases, it’s the supplier who bears the additional cost.

There is, as far as we know, no general increase in VAT rates on the horizon; so this is unlikely to be an issue of immediate concern.  But it’s a point worth bearing in mind when drafting contractual provisions.

For more information about VAT, including its complexities in the property and financial services sectors, our specialists would be pleased to help. Please get in touch via your usual BKL contact or by using our enquiry form.

Simon Levine

Senior Adviser, VAT

T +44 (0)20 8922 9146
E simon.levine@bkl.co.uk

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