Company starts charging VAT

[c10n3d_0r6]

A company has been providing a service to me at an agreed monthly rate. They have now sent me an email to state that they are now liable to charge VAT and all invoices will now include an extra 15% that I am liable for. Is this legal - to just suddenly demand more? I did not know that they were not charging VAT earlier, and they are now not the best option anymore for me as their price is now higher than competitors who include VAT.

 

[Venomous]

Inform them of their competitors' prices and that you would have to reconsider the agreement.

Then decide.
If you are vat registered it will benefit you. However if your turnover does not = you registering for VAT, yes it will cost you more.

 

[kanzen]

Their annual turnover has probably exceeded R1 million.

As per the SARS website:

It is mandatory for any business to register for VAT if the income earned in any consecutive twelve month period exceeded or is likely to exceed R1 million​.

 

[c10n3d_0r6]

This is for a personal service, not business related from my side - so no, not VAT registered and it just becomes more expensive to me. I haven't been too happy with their service anyway and would actually like to leave them, but I have a contract. Thought this might be a good way to get out of it early.

 

[Venomous]

This is for a personal service, not business related from my side - so no, not VAT registered and it just becomes more expensive to me. I haven't been too happy with their service anyway and would actually like to leave to, but I have a contract. Thought this might be a good way to get out of it early.

I provide IT support for a company that started charging vat about 2 years ago(vat was still 14% then). What they did was increase prices by 7% so that they themselves carry half the increase, meaning a 7% reduction in price really, but not everyone is the same.

 

[beefymoocow]

I provide IT support for a company that started charging vat about 2 years ago(vat was still 14% then). What they did was increase prices by 7% so that they themselves carry half the increase, meaning a 7% reduction in price really, but not everyone is the same.

Strictly speaking when you up your price by 15% because you have to charge vat. Its quite likely they making a profit because you can now claim input vat on certain expenses.

 

[Tomtomtom]

Strictly speaking when you up your price by 15% because you have to charge vat. Its quite likely they making a profit because you can now claim input vat on certain expenses.

VAT is tax on value added. So to get money out of it you either have to destroy value or commit fraud. Are you saying that's likely?

 

[Venomous]

Strictly speaking when you up your price by 15% because you have to charge vat. Its quite likely they making a profit because you can now claim input vat on certain expenses.

Not really. That was at 14% time.
Really equated to a 3-4% deceease in profit. Coz Vat they pay was much less than what they charged. Most profit was labour related, not stock.

 

[beefymoocow]

Not really. That was at 14% time.
Really equated to a 3-4% deceease in profit. Coz Vat they pay was much less than what they charged. Most profit was labour related, not stock.

It depends on the industry and if the vat claimable expenses.

 

[RedViking]

A company has been providing a service to me at an agreed monthly rate. They have now sent me an email to state that they are now liable to charge VAT and all invoices will now include an extra 15% that I am liable for. Is this legal - to just suddenly demand more? I did not know that they were not charging VAT earlier, and they are now not the best option anymore for me as their price is now higher than competitors who include VAT.

There is your answer. Move. 15% is a big increase, hopefully they considered this when the made the decision. Or they need to lower their prices to compete with the competitors or just find someone else.

 

[Rustie]

I'd go read that contract carefully again.
Maybe you can find a technicality to get out of it.

 

[IzZzy]

Was the price agreed as inclusive of all taxes or not? If the former, they would have to pay the VAT out of their fee (where the fee remains the same). It all depends on the contracts wording - so a good start would be to read it...

 

[c10n3d_0r6]

There's no mention of tax on any agreement before hand, just a total amount for services rendered.

 

[The_Traveller]

Imo the contract is now null and void.

 

[IzZzy]

Check the VAT Act then - section 64

 

[c10n3d_0r6]

Thanks for all the advice. I'll check the Act out.

 

[Tikkop]

VAT is tax on value added. So to get money out of it you either have to destroy value or commit fraud. Are you saying that's likely?

No. Exporters and fruit farmers, for example, regularly receive VAT refunds because their vatable supplies are zero rated.

 

[Tomtomtom]

No. Exporters and fruit farmers, for example, regularly receive VAT refunds because their vatable supplies are zero rated.

Yeah that's cool but OP is receiving a local service, not apples or imports.

 

[Markd]

does the contract state whether the services provided include or exclude vat? or what the annual increase in the service will be capped at? If it were me I'd get out because the contract lacked that detail, and a 15% increase is unreasonable. They should ideally be keeping their price to you unchanged, and work out the introduction of VAT in their business without impacting their customers. What a silly move on their part.

 

[c10n3d_0r6]

The contract only states total cost and then the value in Rand's without any mention of taxes or anything. There's no mention about increases either. I'm not completely surprised about the way they're handling this judging by how they've handled other things. Thanks for all the advice everyone. I'll let them know I intend to cancel the contract. If they make it difficult I'll consider getting an attorney to read over the contract and provide further advice. The contract ends in a few months anyway, so it might not be worth fighting too much.