Annual Report: Charging VAT

Published on Friday, 09 June 2017. Posted in Case Studies

This case concerns the complaint by the sellers that the agent had charged them additional VAT on the commission fee, whereas they had understood that the fee was inclusive of VAT.

Under Paragraph 5h of the TPO Code of Practice, all fees and additional costs had tobe included in the Agency Agreement. They must be fully explained, and clearly and unambiguously stated in writing. Under Paragraph 5i where a fee is a percentage it should be quoted inclusive of VAT and under Paragraph 5j, where a fixed fee is charged, the actual amount payable must be shown inclusive of VAT.  If an agent complies with these obligations, there should be no confusion about the fee to be charged.

In this case, the starting point was the Agency Agreement.  This showed a fixed fee of £1,500 ‘plus VAT’, thus it was clear that the agent intended to charge VAT on the fee.  The sellers had signed the agreement, confirming that they agreed to instruct the agent on those terms, and had received a copy for their records.  They had not queried the fee stated in the agreement at any point until receipt of the invoice after exchange of contracts. 

However, it was evident that there was confusion about this matter, the sellers being adamant that the fee was £1,500 inclusive of VAT.  On investigation, it was discovered that the agent’s branch file included a handwritten note on the market appraisal form, stating‘£1,500 inc VAT’.  It was accepted that there would have been fee discussions at the point of instruction and this note indicated that the fee discussed had been one inclusive of VAT.

Further confusion arose during the complaints correspondence when the agent’s response to the sellers’ email of complaint referred to the commission fee to be £1,500 inclusive of VAT.

The Ombudsman was satisfied that the agent was contractually entitled to claim the commission fee of £1,500 plus VAT of £300, total £1,800, based on the terms of the Agreement.   

However, the agent should have complied with the TPO Code obligations and should been clearer in their communications on this issue to avoid confusion by expressly stating the total figure including VAT in accordance with Paragraph 5j of the Code of Practice. 

In the circumstances, the Ombudsman was persuaded that the agent’s communications were confusing on this issue and the complaint was supported. There had evidently been discussions at one point about the fee being inclusive of VAT, but the agency agreement showed a fixed fee exclusive of VAT.  It was clear that the sellers experienced unnecessary aggravation, distress and inconvenience due to the agent’s shortcomings. 

The Ombudsman concluded that the agent was contractually entitled to charge £1,800 including VAT as their commission fee, but made an award of £150, the equivalent of 50% of the £300 VAT element, for the aggravation caused to the sellers caused by the agent in relation to this matter.