Firstly, I’m assuming that the invoices for the materials were in the company’s name. If they were addressed to you, the company cannot reclaim the VAT even if they paid the supplier.
If the invoices were in the company’s name, either of you could be right! You need to establish the contractual arrangements between the parties. Was anything formal ever drawn up? The possibilities I see are:
- You are supplying your time only, to carry out work using materials owned by the company; or
- The company has “subcontracted” the project out to you in full. Therefore if they have bought materials, there is an implied sale of those materials on to you.
Under option 1 above, the company charges £1,200 and pays £200 to HMRC, leaving them with £1,000. They pay the materials supplier £120 and reclaim £20 from HMRC. This leaves them £900 to pay you.
Under option 2 above, the company need to “sell” the materials to you, and will have to pay VAT to HMRC on that sale. So they pay you the £1,000 that they got from their customer, and at the same time charge you £120 (£100 + VAT) for the materials sold to you – which leaves you with the £880.
If there’s nothing formal in writing, best place to start would be by working out whether you have ever had any control / ownership of the materials. If you have not, then it’s likely that you’re supplying your time only – option 1 above.