As a supplier of goods or services, where contracts with customers do not state that list or contract prices are excusive of VAT, the supplier business will not be able to charge the further 5% VAT to its customer. This is because prices for goods and services are deemed under the VAT Law to be inclusive of VAT, unless expressed otherwise. In such circumstances, the business would have to bear the 5% VAT cost, and lose that 5% from its revenue, since it will have to account to the tax authority for VAT, despite it not being paid to it by its customer.

To address this, the practical takeaways are simple:

  • have your standard form customer contracts reviewed and amended now to anticipate VAT, so that all new contracts entered into cover this point; and
  • have all ‘live’ customer contracts which will span 1 January 2018 reviewed to assess your businesses’ potential exposure to a VAT cost. There could be opportunities to renegotiate those contracts or adapt them for VAT in the coming weeks and months to avoid your financial exposure altogether.