Contract Value

[GoLightlyHollie]

I own a flat in a building managed by a management company.
We are in the process of undertaking Major Works.
In the contract with the management company, it is stated that they charge "12% of contract value for Major Works".

For sake of simplicity, let's say the Builder (contractor) has quoted £100k for the work plus VAT.
The management company believes they can base their 12% charge on £120k. and so charge us £14,400.
The leaseholders believe the management company should be basing their 12% on £100k ie £12,000.

We are arguing on the definition of contract value.
Does anyone know who is right, the management company or the leaseholders?

[BigGrannyPants]

Depends if they are VAT registered s and can claim back the VAT? If they can then they should charge the 12% on the £100K and claim back the VAT. If they can't claim back VAT then it'll probably charged on the £120K

[GoLightlyHollie]

But they are charging their fee based on the "contractor cost plus VAT"
and then charging VAT.
We agree that VAT should be charged on both contractors cost and the management fee.
We do not agree that the fee should be based on "contractor cost plus VAT"; it should be based "contractor cost ex VAT".
That is where the disagreement lies.

[wowfudge]

Have you looked on the HMRC website? There are definitely some instances where a plus VAT fee can be charged on a cost which includes VAT. I've come across it before, but can't remember the exact circumstances. What does the contract with the managing agent say about their fees?

[GoLightlyHollie]

That's the issue really. The contract states:
"12% of contract value for Major Works".
There is no mention of whether that 12% is based on the gross or net figure, only on the "contract value" and this is what we are disputing, ie whether "contract value" implies gross or net figure.