Waiting for the VAT may cost you

If your contracts currently require your contractors/consultants to provide a VAT invoice before they are entitled to be paid, you could be inviting unforeseen consequences.  The recent changes to the Construction Act have complicated the process of issuing payment notices and a number of previously workable provisions regarding VAT invoices now contradict the amended Act. Attempts to delay the payment of interim sums that have become due until a VAT invoice for that sum has been received, or to state that the final date for payment is calculated by reference to the date of receipt of a VAT invoice, will both fail to satisfy the new requirements.

If a contract fails to satisfy the requirements of the Construction Act, then the statutory Scheme for Construction Contracts will be imposed, meaning the periods for issuing payment notices and for actually making payment will more than likely change from those agreed between the parties. This in turn may lead to notices being issued late, a fact that has been the basis of many a dispute.

For advice on how to draft payment clauses to avoid these issues contact Simon Franklin

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