CPA Bulletin

www.cpa.uk.net CPA Bulletin > August 2023 39 Q&As: 2 The issue of whether to charge a customer VAT on an invoice relating to damage during the hire period has been confusing for all concerned for quite some time. Up until April 2022, any invoices raised by plant owners to their customers as a result of damage to plant during the hire period was outside the scope of VAT. After that date, HMRC updated their guidance at https://www.gov.uk/hmrc- internal-manuals/vat-supply-and-consideration/vatsc05910. The updated guidance supersedes previous thinking, and in essence, if the supply of goods or services were subject to VAT, then anything related to it, i.e. damage to the plant during the hire period, would also now qualify for VAT. I had a similar query in May 2022, and spoke to our accountants Barnes Roffe, who confirmed HMRC’s updated position. If you wish to pass on the above link to your customer, then that may help resolve this issue. We have a customer who has hired an item of plant from us under the Model Conditions. The machine was slightly damaged during the hire period, and our customer is alleging that any invoices we raise for the damage are outside the scope of VAT for repairs. They have even referenced a HMRC document - VATSC06190. Can you confirmwhat the position is for charging VAT for damage to plant? If you’re hiring an operator with the plant, then you must ensure that person is competent, i.e. holds a valid CPCS or equivalent card for the item of plant being supplied, as per clause 8 of the Model Conditions. The individual will also be deemed to be the customer’s servant or agent for the duration of the hire period, and will be under their direction and control. The danger with obtaining personnel from a third party, is checking what the third party’s terms and conditions state, i.e., what their liability covers them for. If there was an incident on your customer’s site, the question of whether the operator was ‘incompetent’, as opposed to just making a mistake may lead to a protracted dispute. If the operator made a genuine mistake - accident, even ‘negligent’ as the customer will allege - then you’re protected under the Model Conditions; however, if it can be shown that the operator was incompetent, i.e. that the operator knew their actions would cause an incident/accident, but carried on regardless, then you may very well be liable. It will depend on whether the agency/third party’s insurer will accept the view that they had provided an incompetent operator and will settle any claim on your behalf that was raised by the injured party. If you use agency workers, then you may want to familiarise yourself with an agency’s terms and conditions to confirmwhat right of redress you have should something go wrong; then pass these to your insurance provider for their comments. My business operating model is a rehire company, and I amoccasionally asked to provide an operator with the plant my customer has ordered. I don’t currently offer this service as I have been led to believe by my insurance company that the operator would still technically work for me that day, even when hiring themout under the Model Conditions. Can you provide any clarity on what our position would be? The issue with Director’s Personal Guarantee (PG) is that they themselves will become liable if the company cannot settle a debt. This is usually imposed where the company’s trading history is so precarious that a supplier may request safeguards, i.e., a PG. It is not customary to discuss it at the beginning of a trade relationship, i.e., when a new customer wants to set up a credit account with you; but it is always worth monitoring the aged debt analysis of your customers to note when they pay their debts, howmuch is outstanding, etc., and to modify the credit accordingly, i.e., reduce the credit limit, or perhaps shorten then credit terms from 45 days to 30, or less. I hope this response has given you some clarity. We have a new customer who has signed our credit application form and CPA Conditions (both with signature from the company director), but there have been some discussions regarding Personal Guarantees. Perhaps you could shed some light on this? There is a two-stage answer to this query. (1) If it can be shown that the Model Conditions were accepted - or certainly not challenged nor did they send you their own terms - then there is a strong argument that the Model Conditions governed the contractual relationship between you and your customer. (2) If (1) can be established, then from that position, you should look at clause 23(c) of the Model Conditions which states: c) If the Hirer terminates the Contract before the Hire Period commences, then the Hirer is liable for all reasonable costs and charges incurred by the Owner or to which the Owner is committed at the time of termination. So if you have incurred significant expense in procuring the items for the customer’s contract, which then the customer cancels, then the customer is liable for those costs. The customer’s position should be outlined to them in a letter, with the terms accompanying it. We have a customer who had contacted us to hire various items of plant and equipment for a forthcoming contract. We sent thema copy of the Model Conditions together with the agreement, which they have not challenged us on, nor sent their own terms. We were in the process of obtaining these items when the customer has suddenly cancelled the contract. This has left us facing significant expense for plant which is not needed. Do we have any right of redress against our customer?