Under the JCT DB 2016 does unpaid VAT entitle a Contractor to suspend performance, and secondly, is interest due on the VAT unpaid?

Asked 3 months ago
2020-07-07 07:09:03

Under the JCT DB2016, clause 4 contains provisions for Interim Payments, and provisions for handling late, part and non-payment of an amount due.

If an amount due is not paid in full by the final date for payment, the Contractor may suspend after 7 days notice of his intention to do so. Would this facility exist if the principal amount due was paid, but the VAT was not? The provisions of the contract seem to always refer to amounts due, which seem to imply net value - but I would be interested to hear opinions, and understand which payment provisions encapsulate VAT and the situation when it is not paid.

Secondly, in the event of a late payment of an amount due, interest is chargeable at 5% if the contract is unamended ( see Definitions, Interest Rate) above the Bank of England bank rate, calculated simply over the number of days the payment is late. Does this also apply to the VAT component that was unpaid on the principal amount due, and if so, what terms of the JCT contract provide for this.

It would seem equitable that VAT inpaid by the Employer should permit the Contractor to recover the interest they have agreed to in the contract, because HMRC will not hesitate to charge interest at 2.75% ( at the time of writing ) on unpaid / late VAT returns, or indeed the Contractor may have already turned the amount over to HMRC in anticipation of receiving it from the Employer, only to find it does not come, and the Contractor then has to fund the cashflow itself, to its expense.