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HMRC internal manual

VAT Time of supply

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HM Revenue & Customs
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Basic tax points: performance of services: disputed performance

Situations do sometimes arise where supplier and customer disagree as to whether the contract has been fulfilled. The determining factor here will be the view of the supplier. If the supplier maintains that the contract has been fully performed then the supply should also be regarded as having been completed for VAT time of supply purposes.

This is one of several points considered by the Tribunal in the case of Mercantile Contracts Ltd (VTD 4357). Mercantile supplied building services to an associated company. In considering when these services were performed for the purposes of what was then section 4(3) of the 1983 VAT Act (now section 6(3) of theVAT Act 1994 – see VATTOS2220), the Tribunal took into account the fact that there were said to be defects in the work undertaken. Nevertheless, the Tribunal held that because Mercantile Contracts had handed the building over in the belief that it had carried out the work it was contracted to do, the services had been performed and a basic tax point for the supply was created at that time.

In some other cases, whilst the contractual position is clear, it can still be difficult to determine precisely when a service can be said to have been completed. This is particularly so where the supply takes place over an extended period of time and comprises, say, periods of intense activity followed by periods during which little may need to be done.

Examples of this include litigation conducted by solicitors and services provided by architects in connection with major building projects. It is often necessary in these circumstances to be guided by the person making the supply. Even so they should be expected to substantiate any claims about when the work was completed.

Similarly performance of work under a contract can cease before it has been completed.This can arise where, for example, there is a dispute between the parties to the contractor where one of them goes into liquidation. If this occurs the services are regarded as having been performed for the purposes of section 6(3) at the time the work ceases.