CPA Bulletin

50 CPA Bulletin > May 2020 www.cpa.uk.net We are in the early stages of a dispute we have with one of our customers, who had hired an itemof plant fromus under the Model Conditions for an indeterminate period. Due to amix-up, wemissed an email from the customer who had off hired the plant. When we realised our mistake, we went to site 12 days after the email had been sent. [This occurred before the Coronavirus outbreak.] We discovered the plant had been damaged, and the estimated repair cost will be approximately £2,000. Due to the amount of time that had elapsed before we collected the plant, are we able to charge the customer for the damage? As the hire was for an indeterminate period, i.e. a specific start date, but no specific end date, then the Hirer is responsible for the Plant for up to seven calendar days after it has been off hired. After that point responsibility for it reverts back to the Owner - as per clause 24(a) of the Model Conditions Unless you can prove that the damage occurred in those first seven days, then it is unlikely you’ll have any success in recovering the loss from the Hirer - even though the plant remained on the Hirer’s site. q A Q&As: 3 With Easter approaching, how do we calculate the holiday entitlement for those employees who are currently on furlough? If an employee is already on furlough, and this must be for a minimum of 3 weeks, then any days taken as holiday, e.g. Good Friday and/or Easter Monday, will be treated as furlough, and the employee will receive 80% of his wages. The employee’s holiday entitlement will effectively be deferred till another time. Those employees who are still working will be treated as normal for any holidays they take during this time. The Government has announced that due to the Coronavirus, employees may not be able to take all their holiday entitlement this year, and so have allowed holiday entitlement to be carried forward over the employer’s next two holiday years. The reasons for this are two- fold: (i) to avoid any employees losing their entitlement for this year. (ii) So the employer doesn’t have a rush of holiday requests from employees when restrictions are lifted. q A Prior to the Coronavirus situation, we had hired out an operator with an excavator under the Model Conditions. During the hire period, the excavator was damaged. Can you confirm that the customer is liable? If the excavator was damaged whilst on hire to the customer, then you need to refer to clause 13(b) of the Model Conditions - Hirer’s Responsibility for Loss and Damages. The clause also states that the customer will be charged an ongoing hire rate until settlement has been agreed. q A As is normal practice for our industry, we hire out our plant which is fully fuelled with red diesel. The plant is delivered to site, and may be refilled numerous times, subject to the length of hire. Before the hire has ended, our customer will re-fill the item of plant one final time before it is collected from site. However, our customers are occasionally faced with the difficulty of being unable to refill the plant before it is collected. In these instances, we refill the plant’s tank once it has returned to the depot, and separately charge the customer a suitable re-fuelling rate, and invoice at 5% VAT. We have been contacted by a HMRevenue and Customs (HMRC) inspector, who has challenged us on this VAT rate. Could you advise on what VAT rate we should charge? Many thanks for your email which has been passed on to me. In my opinion, there is a two-stage response on whether you can charge the customer 5% VAT or 20% VAT. The first point is whether the ‘De-minimis’ rules apply, i.e. that you are supplying less than 2,300 litres of red diesel. If the quantity is below this, then VAT will be charged at 5%. The second point is whether the invoice sent to the customer for non- refuelling of the item of plant constitutes a separate supply or a single supply as it relates to the original supply of the machine. In my opinion, to qualify as a ‘separate supply’, you needed to transport fuel to the site, which would allow the customer to refill the item of plant before it was returned. I accept that this isn’t practicable, but because this wasn’t carried out, the HMRC Inspector may simply view the subsequent invoice, which addresses ‘non-fuelling of the plant’ as a surcharge to the original hire, and therefore would expect the customer to be charged 20% VAT. Under the circumstance you have outlined, I would agree with the HMRC Inspector’s viewpoint and expect the customer to be charged 20% VAT. You may wish to obtain the services of a tax specialist to investigate the matter further. q A