Compensation Payment

T.C.

My client has paid a plumbing company to work at a new property installing all plumbing and heating and has paid them.
The plumbers have messed up and now need to pay my client approximately £2,000 in compensation, which they have agreed.
How do I show this? Should it be as a credit against the original invoices from the plumber or should it be shown in another way? Presumeably no VAT would need to be charged - it is a new build zero rate property!
Your input would be appreciated.

peugeot

You could post it against the expenses or you could show it as other income.

Kind regards
Steve

T.C.

Vat

If I call it income, then what about the VAT, can this still be zero rated?

rjww85

Compensation should not have VAT on it, as it is similar to an isurance claim receivable.

You could either show it as

1) A credit in the expense nominal where the original invoice/payment was posted.

or

2) A credit in other income nominal labelled 'compensation receivable'. Hope this helps

T.C.

Thanks

Thanks. That is very helpful! :thumbup: