Is your supplier charging you the correct rate of VAT?

Even where you, as the buyer, can recover VAT charged by a supplier as input tax, it is still essential to ensure that the correct VAT rate has been applied in the first place. If VAT has been charged incorrectly, HMRC may disallow the input tax claim altogether, potentially leaving you exposed to interest and penalties.

Crucially, HMRC does not pursue the supplier to correct the error. Instead, the responsibility sits with you to identify the issue and recover the VAT directly from the seller, which can be time-consuming and commercially awkward.

Start with the basics: checking VAT numbers

As a first step, you should always verify the VAT number of any new supplier when you receive their first invoice. This can be done using HMRC’s VAT number checker here, which also allows you to keep a record of the check for due diligence purposes.

For existing suppliers, it is good practice to repeat this process at least annually, or more frequently for higher-value or higher-risk suppliers.

Common situations where VAT is often charged incorrectly

Certain transactions are more prone to VAT errors and warrant extra scrutiny:

Construction

• Conversion of a commercial property into residential use may qualify for the reduced 5% VAT rate
• Refurbishment of a residential property that has been empty for an extended period may also attract 5% VAT
• The construction of new buildings for a Relevant Charitable Purpose (RCP) can be zero-rated
• Some construction services fall under the Domestic Reverse Charge (DRC), meaning the supplier should not charge VAT and the buyer accounts for it instead

Property leases

If you are renting an office and the landlord is charging VAT at 20%, you should request evidence that they have opted to tax the property. Without a valid Option to Tax (OTT) notification to HMRC, VAT should not be charged.

Business acquisitions

Where a transaction qualifies as a Transfer of a Going Concern (TOGC), VAT should not be charged by the seller. This is a common area for error during business sales.

VAT groups

Supplies between members of the same VAT group are ignored for VAT purposes and should not be invoiced with VAT.

Non-Established Taxable Persons (NETPs)

If you have no physical establishment in the UK:

• Most UK business-to-business services supplied to you should be treated as “outside the scope” of UK VAT, regardless of whether you are UK VAT-registered
• If you purchase goods from the UK for immediate export overseas, the supplier should usually zero-rate the sale

Why this matters

Incorrect VAT charges can look harmless if VAT is recoverable, but the financial and administrative risk sits firmly with the buyer. Proactively checking VAT treatment can prevent unnecessary disputes with suppliers and costly challenges from HMRC.

For tailored advice or a review of higher-risk transactions, please contact a member of the VAT team.