Late payment charges

10110527

One of my clients has charged one of his customers late payment & interest charges. As he is VAT registered, should these charges be vatable? At the moment he has not added VAT to the bill.

Monsoon

VAT exempt.

blobbyh

I thought the compensation element was vat-able with only the calculated overdue interest part non-taxable?

Monsoon

blobbyh wrote: »

I thought the compensation element was vat-able with only the calculated overdue interest part non-taxable?

I'm pretty sure the whole lot is exempt though I'm by no means a VAT expert so am happy to be corrected if so. I've certainly never seen it VATed.

blobbyh

Online research seems a bit vague with differing opinions.

This one implies no vat on the interest part only:
http://payontime.co.uk/common-misconceptions-about-the-late-payment-legislation

This one says no vat on any part, compensation or interest:
http://www.deliver-it.biz/2008/04/what-are-late-payment-charges/

This one doesn't know either way (about half way down):
http://www.ukbusinessforums.co.uk/forums/showthread.php?t=57682

For ones I've received (most recently from Regus [Virtual Office providers]) and done in real life, VAT is charged on the compensation element but not on the interest part!

So no definitive answer unless someone else knows it?!

Monsoon

In the last link (from UKBF, I know it well!) The only accountants to contribute to the thread are Kent Accountant (very knowledgeable) and 3pic (ultra hot VAT expert). They both agree there is no VAT on either the interest or the fine/late payment fee.

That agrees with my experience of it, and if those 2 agree, that's more than good enough for me!

blobbyh

Shamefully I didn't read the whole thread Miss Frost, just the first page! But I'll concede to yours - and their - greater knowledge than mine, mend my ways and find time to complain to bloody Regus for their also not knowing any better!

Monsoon

blobbyh wrote: »

Shamefully I didn't read the whole thread Miss Frost, just the first page! But I'll concede to yours - and their - greater knowledge than mine, mend my ways and find time to complain to bloody Regus for their also not knowing any better!

:-) I only looked for accountants who contributed to that thread, no point looking at the others (and there are some very dubious accountants on there who get things wrong all the time so wanted to check who it might have been!).

I'd trust a reputable forum accountant over Regus any day

coojee

They probably won't pay the interest anyway so you'd be claiming back any VAT that you did charge in 6 months time anyway.