Is this Letting Agent VAT Fraud?

missloulou
missloulou Registered Posts: 8
Hi Guys

Just wondering if someone could help.

I think my letting agent could be committing vat fraud, they have been charging me commission on contractors invoices.

My statement states the following:
invoice by abc contractors for work done - £193.60 (no vat as abc contractors is not vat registered)
misc commission at 10% - net £22 vat £4.40 gross £26.40

I requested an invoice from abc contractors and the total is £220 i e 193.60+26.40, as I say no vat charged.

Can anyone explain?

Many thanks for any help

Comments

  • reader
    reader Experienced Mentor MAAT, AAT Licensed Accountant Posts: 1,042
    I can't see what the problem is here.

    There is hardly anything to explain, as this seems extremely straightforward.

    You are paying £220

    This £220 is broken down as follows:

    £193.60 to the contractor who is not vat registered, and
    £26.40 to the letting agent who is vat registered and therefore has to charge you vat (i.e. 22 + 4.40)

    I can't believe that this needs explaining.
  • missloulou
    missloulou Registered Posts: 8
    edited March 2018
    T
  • missloulou
    missloulou Registered Posts: 8

    Thanks for your reply but I dont think you have understood.

    The invoice from the contractor is £220, and he is not vat registered, therefore I am not sure it is straightforward. Why if the bill is £193.60 on the landlord statement is his non vat invoice for £220?

    Then it is broken down on my landlord statement from the letting agent as:
    invoice by abc contractors for work done - £193.60
    misc commission at 10% - net £22 vat £4.40 gross £26.40

    BTW the letting agent has not been upfront about charging commissions (which as you probably are aware is illegal), and it being mentioned on their landlord statement I know is an oversight on their part.

    I am just wondering how its accounted for?



  • reader
    reader Experienced Mentor MAAT, AAT Licensed Accountant Posts: 1,042
    Firstly, apologises for my previous reply. You are right, I don't think I properly understood the situation.

    However, I still don't think there is a huge problem here, and in my opinion it is probably over the top to describe this as VAT fraud. I don't think any solicitor or HMRC would agree this is VAT fraud (this is an extremely serious crime that you can go to prison for).

    You are being invoiced by the contractor £193.60 for work done + a £26.40 admin fee. The breakdown of this £26.40 admin fee is irrelevant and it would probably have been better for the contractor not to include it because it just confuses matters.

    According to the link below there is only a consultation going on regarding banning lettings fees and the 'law' is only at draft bill stage (rather than an actual enforceable Act of parliament):

    https://www.gov.uk/government/news/government-action-to-end-letting-agent-fees

  • CSan89
    CSan89 MAAT Posts: 207
    That consultation I believe is only going to cover tenants and not landlords.

    It seems right to me, if it isn't in your contract with them then you could contest the commission but the VAT element is correct.

    I have a feeling there is an underlying trust issue between you as a landlord and the letting agent that may be clouding judgement.
    AAT Level 2&3 - 2016
    AAT Level 4 - 2017
    Personal Tax, Business Tax and External Auditing

    ACA/CTA -
    Certificate Level - Jan 2019
    reader
  • missloulou
    missloulou Registered Posts: 8
    edited March 2018
    Thanks for your kind replies.

    The link you have provided is for tenants, I am the landlord and therefore does not apply to me. It is illegal for letting agents to charge commissions if they have not declared these and been transparent prior to the contract start. It comes under the law of agency, the Bribery Act 2010 and the Consumer Rights Act 2015 Part 3.

    The contractor did not include an admin fee on his invoice. All the contractors invoice states is £220 for tidying the garden.That is all.

    It is the landlords statement from the letting agent to me that mentions commissions and vat on such commissions as follows:
    invoice by abc contractors for work done - £193.60
    misc commission at 10% - net £22 vat £4.40 gross £26.40

    So if it is just an admin fee from the contractor as you suggest, then why am I being charged vat when the contractor is not vat registered?
    Surely the only explanation is that the invoice was for £193.60 then the letting agent has charged me commssion at 10% and correctly (csan89- I dont dispute this, and charging commissions isnt in my contract, see laws above) as is required of him, vat on top of this? (The letting agent has admitted he does charge commissions but that i am no way affected - however the above does read like that to me)
    So then why the invoice from the contractor for £220?
  • CSan89
    CSan89 MAAT Posts: 207
    For VAT of £4.40, HMRC won't worry. They have much bigger fish to fry.

    Also is it worth your time and energy over £20? If you don't trust the letting agent then switch to another one.

    Life is too short.
    AAT Level 2&3 - 2016
    AAT Level 4 - 2017
    Personal Tax, Business Tax and External Auditing

    ACA/CTA -
    Certificate Level - Jan 2019
  • missloulou
    missloulou Registered Posts: 8
    edited March 2018
    Aaah but this is only one invoice in many CSan89. All in all it comes to almost £1000. £1000 that the law states belongs to me under the law of agency.
    Letting agent already switched, but taking them to court for breach of above laws and want to try and understand the accounting situation so I am clear in court.
  • CSan89
    CSan89 MAAT Posts: 207
    Then I would suggest hiring an accountant who is a VAT specialist. Especially if you are taking it to court.
    AAT Level 2&3 - 2016
    AAT Level 4 - 2017
    Personal Tax, Business Tax and External Auditing

    ACA/CTA -
    Certificate Level - Jan 2019
  • missloulou
    missloulou Registered Posts: 8
    Alreadty done!
  • reader
    reader Experienced Mentor MAAT, AAT Licensed Accountant Posts: 1,042
    Does the letting agent charge you a management fee + VAT on the rent you receive?

    It is strange that they did not put a clause in the contract about additional fees due on work they have to arrange for you.

    If the contractor's invoice only states £220 then how can you accuse him of VAT fraud if his invoice doesn't even state VAT? Good luck with taking the contractor to court about that.

    The accounting situation is irrelevant if you are taking the letting agent to court regarding charging hidden fees.

    It appears the letting agent has screwed things up from himself by declaring his hidden fees to the entire world on the landlord statement. This type of thing is very common (i.e. the contractor over inflating his invoice and then giving the letting agent a kickback for helping him find work) but what is not as common is the letting agent openly admitting his on their statement (unless it was agreed that commission is due on work arrange by the letting agent).
    CSan89
  • missloulou
    missloulou Registered Posts: 8
    edited March 2018
    Yes I am charged a management fee and vat which is fine.

    No mention of commissions in their contract and no mention when I asked them prior to the contract start. At first they denied the commssions now they accept the do indeed charge them but tell me I am in no way financially affected (!).

    I am not taking the contractor to court - I am taking the letting agent to court for amongst many other things none disclosure of commissions charged....which is iilegal.

    Is it irrelevant? I thought it would help me understand better what they are actually doing and conclusively showing that I am indeed financially affected by it?

    Just dont get the £220 invoice fromthe contractor - do they then issue a credit note to the letting agent for the £26.40?

    Agree he has really messed up making this so obvious, and I am sure he is kicking himself right now, but I have given him every opportunity to keep it out of court but he will not engage. The declaration occured during the changeover to a new accounting system. Also agree its rife with the underhand agents....if only they told you upfront, it wouldnt be an issue!
  • reader
    reader Experienced Mentor MAAT, AAT Licensed Accountant Posts: 1,042
    In my opinion speculating on the accounting is irrelevant. The courts are unlikely to deal with speculation.

    To be honest, you already understand the accounting.

    You pay the contractor £220 and the contractor pays the letting agent £26.40 as per the letting agent statement.
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