Parties to construction contracts are typically well aware of the payment regime the Construction Act imposes, including the employer’s obligation to pay the contractor all notified sums in full by the final date for payment.
This may create a problem for the employer if the contractor does not provide a valid VAT invoice in respect of the notified sum. The Act requires the employer to pay the sum due (including any VAT). However, if it does not receive a valid VAT invoice, this could create VAT accounting problems for the employer and, potentially, lead to an inability to reclaim the VAT.
A common solution for employers (and for main contractors in respect of their subcontractors) is to link the final date for payment to the submission of a valid VAT invoice for the notified sum (i.e. so that it is a certain number of days following the submission of the VAT invoice). This seeks to ensure that the employer will not be obliged to pay until it knows its VAT position is covered. However, the recent decision of the TCC in Rochford Construction Limited v Kilhan Construction Limited has arguably put an end to the validity of this practice.
Source: charlesrussellspeechlys.com
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