Quick query

I was hoping someone could give me some advice with a query I have regarding a credit I need to raise for a customer. I work for a payroll company and our bureau department were late in paying the company's PAYE, as a result they were charged interest of £6.70 which we have agreed to raise a credit note for.
My question is would I have to raise a credit note for 6.70 plus standard VAT? as they then get a credit note for £7.87 which is more than the charge they have received or would I use a different VAT code?
Thanks
My question is would I have to raise a credit note for 6.70 plus standard VAT? as they then get a credit note for £7.87 which is more than the charge they have received or would I use a different VAT code?
Thanks
Comments
However, this is only what I think, not what I know!
We never charge VAT on our interest charges or late payment charges either.
Or am I wrong?
VAT should be added to your credit note.
Poodle
So you could have done what I did and found the correct information in a few minutes.
For that reason I wouldn't call it an exempt supply. If the company paid the interest directly then it would be different but they are actually refunding some of their fee so I believe it should have VAT on it.
To avoid it can your company pay the interest directly for the client?
Is your client VAT registered? If, yes, then do not worry, as they have to pay vat back on credit note. So they would receive benefit of £6.70, and £1.17, they have to pay over to HMRC.
However, if the client is not VAT regaister just raise credit note for £6.70 including vat (Net amount £5.70 and vat £1.00) As the client is not registered he would get full credit of £6.70.
Certainly 4.1 inerest does not apply.
If you cosider this payment as compensation then it would become interesting.
Nilesh