Contractors face VAT confusion

Contractors working on education schemes face VAT confusion following a decision in the Scottish Court of Session.

In a case involving Edinburgh's Telford College, it was decided that zero-rating of VAT can be extended to clients in the education sector. If upheld, this would mean that many building projects that would otherwise be regarded as standard-rated may become zero-rated if the client issues a certificate.

Clients falling within the scope of the decision include higher education colleges, universities and even some specialist charities.

The case is expected to be appealed to the House of Lords. Grant Thornton VAT director Paddy Behan said: "Until then contractors may be faced with uncertainty. In realtion to work in progress and new projects, many clients will now issue certificates on the basis of the ruling. Indeed some will now go back to their contractors to ask for VAT credit notes on the basis of retrospective certificates.

"However, incorrect issue of certificates can result in penalties. More importantly, careless reliance on wrongly issued certificates can expose a contractor to interest and penalties."

He concluded: "The ruling cannot be ignored because, while Scotland has a separate legal system, VAT is based on common principles."