Quick query
galaxy
Registered Posts: 21 New contributor 🐸
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
0
Comments
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If you are VAT registered and normally charge them VAT when billing, I would include VAT on the credit note.
However, this is only what I think, not what I know!0 -
I wouldn't put VAT on as interest is not vatable as far as I am aware.0
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I'm fairly certain you do not charge VAT on interest, because the interest amount is based on the gross amount of the debt.
We never charge VAT on our interest charges or late payment charges either.0 -
The way I see it, the Interest is between HMRC and your client. You are merely reducing their liability to you for not giving them a service which you had charged for, including VAT. Therefore you should include VAT in the credit note.
Or am I wrong?0 -
HI
VAT should be added to your credit note.
Poodle0 -
A couple of minutes on the HMRC website finds...4.1 Loans, granting of credit and advances
If in the course of your business for a consideration you- supply credit
- advance money in the form of loans
- provide overdrafts or other advances
Interest received on money deposited is consideration for an exempt supply.0 -
This caused a good discussion, i was getting worried as I wouldn't have charged VAT either but it's complicated by the fact that you are refunding part of your VATable charges. You are not really crediting the interest but refunding part of your sales cost.
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?0 -
On reflection, I was probably slightly harsh there but I still think that it's better to ask HMRC about this sort of rather recherché issue than us lot.0
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a credit note for £7.87 which is more than the charge they have received or would I use a different VAT code?
Thanks
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.
Nilesh0
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