Compensation Payment

T.C.
T.C. Registered, Tutor Posts: 1,448 Beyond epic contributor 🧙‍♂️
in General accounting discussion
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.

Comments

  • peugeot
    peugeot Registered Posts: 624 Epic contributor 🐘
    You could post it against the expenses or you could show it as other income.

    Kind regards
    Steve
  • T.C.
    T.C. Registered, Tutor Posts: 1,448 Beyond epic contributor 🧙‍♂️
    Vat

    If I call it income, then what about the VAT, can this still be zero rated?
  • rjww85
    rjww85 Registered Posts: 20 New contributor 🐸
    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.
    T.C. Registered, Tutor Posts: 1,448 Beyond epic contributor 🧙‍♂️
    Thanks

    Thanks. That is very helpful! :thumbup:

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