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Is this VAT correct

itsme
Grafter
Posts: 5,924
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Registered: 07-04-2007

Is this VAT correct

Several months ago the energy Ombudsman awarded me a sum of money payable to me by my energy provider. This was eventually credited  on this month bill and I noticed that total sum was made up of: Total Sum = y + 20%VAT. Now as energy only carry 5% VAT to me this mean that 15% of the compensation award is being paid by the Tax payer. Surely this can't be correct
10 REPLIES
nadger
Rising Star
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Registered: 13-04-2007

Re: Is this VAT correct

I'm sure that 5% VAT rate only applies to gas or electricity supplied and that any other services provided would carry 20% rate.
Perhaps this is the reason.
itsme
Grafter
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Registered: 07-04-2007

Re: Is this VAT correct

The award was to do with energy supplied so the only VAT I pay is 5%
But thinking more about it I believe any compensation award should not have a VAT element to it as this reduce the cost to the company.
Moderator
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Re: Is this VAT correct

Just a guess but if it's classed as compensation or similar then perhaps the company attracts 20% whereas a refund would be the original 5%.
Or did the company charge you 20% in error in the first place?

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Community Veteran
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Re: Is this VAT correct

I thought the 5% rate of VAT on energy only applied in Scotland?
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Moderator
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Re: Is this VAT correct

England also and most probably UK wide.
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gswindale
Grafter
Posts: 942
Registered: 05-04-2007

Re: Is this VAT correct

This link may provide some info and assistance.
Energy supplies are subject to standard VAT rates unless domestic.
itsme
Grafter
Posts: 5,924
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Registered: 07-04-2007

Re: Is this VAT correct

My energy is domestic and I never see no other rate than 5%
So the ombudsman awarded me compensation of x which my Utility provided raised as a credit as x=y+20% As this is a credit when it appear on their VAT returns it will be a negative figure. So I have the sum awarded credited to my account which will deplete for each bill with only 5% VAT applied. So has the Utility provider benefited  from the use of the 20%? I believe they have.
gswindale
Grafter
Posts: 942
Registered: 05-04-2007

Re: Is this VAT correct

might be worth double checking with them.
I suspect that it's arisen as part of a "glitch" on their system that states that any ad-hoc credits should be standard rated.
Was the amount of compensation "x" or was it "x+20%"?
Community Veteran
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Registered: 10-04-2007

Re: Is this VAT correct

If you Google "vat compensation payments" there's plenty comes up. E.g. http://businessdatabase.indicator.co.uk/article.php?nlid=UKTATXAR_EU092102&src=search&domid=53 which suggest that if they do it right it is legal.
http://www.hmrc.gov.uk/manuals/vatscmanual/vatsc35000.htm looks to be the right place to start. Does your case match one of the precedents listed on that page?
How about a call to 0845 010 9000 (HM Revenue and Customs VAT helpline)? I'm sure they'd be interested if VAT should not have been applied!
jelv (a.k.a Spoon Whittler)
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itsme
Grafter
Posts: 5,924
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Registered: 07-04-2007

Re: Is this VAT correct

@jev Thanks for the latter link, it did not occur to me to do a search on this  Embarrassed I will take it up with HMRC as I had 2 years of problems and still ongoing with my Utility provider so much of a pain I can be to them the better.