Don't forget to spell out VAT

Published:  28 November, 2012

LONDON: Failing to spell out VAT liabilities on contracts can cause problems warns law firm Cameron McKenna.

"The E-Nik case highlights the importance of construction contracts stating whether or not VAT is payable on top of the contract price," says Karen Sanderson from Cameron McKenna.

"When it comes to the interpretation of clauses dealing with VAT, for contractors and other service providers, one thing is certain Ð silence is not golden.Ê In the absence of a clear and unambiguous term expressly stating that VAT is payable in addition to a quoted price, contractors may find themselves giving their employers an unexpected discount," she says.

In E-Nik, a supplier of IT services claimed payment under a consultancy agreement at a specific hourly rate but the contract did not address the issue of whether VAT was additional to, or included in, the rate. The supplier claimed that VAT was payable on top of the rate, but the employer disputed this. Despite the fact that the employer, over the years in which VAT had always been payable in addition to the quoted hourly rate, a judge held that there was no agreement, either express or implied, that VAT should be added to the claimant's fees.

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