Interest on late fees...

Interest on late fees...

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How do others deal with late payment of fees by clients? Charge interest? What rate? Should VAT be charged on the interest?

We use VT transaction for our bookkeeping and wondered how to adjust for additional interest. As I say should VAT be charged?
Nicholas Robinson

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By pauljohnston
25th Jul 2007 18:24

Interest
In our terms of engagement we reserve the right to charge interest at 2.5% per month (even more than Barclaycard). We have only done this once - the threat is normally enough to extract payment.

As to VAT well we did not charge - I have difficulty in seeing how it is VATable - the bank does not charge VAT (Thank goodness).

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By kevin.robins
26th Jul 2007 09:32

VATable
We've charged interest to a couple of clients over the years and never added VAT. What is the authority for this to be treated as a VATable item?

In addition one of the clients who paid us interest was a Limited Company. As we are a partnership, the company had to deduct tax and pay this over using the CT61 procedures.

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By AnonymousUser
24th Jul 2007 16:18

Interest
I don't charge interest. Maybe I should!

However were I to charge interest, I would use the statutory rate under the Late Payments of Commercial Debts act. Visit www.payontime.co.uk and click on Legislation and Interest calculator.

And I believe it is non-VATable, in the sense that it is either 0% or Exempt but I am not sure which. I think it's exempt.

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By pauljohnston
26th Jul 2007 11:16

Where to post interest in VT
Just having a look and I would treat it the same way as deposit interest under 'Interest Receiveable'.

Just a payment for your loss of potential interest - nothing to do with your Vatable fee.

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By User deleted
26th Jul 2007 11:58

Guess what, VAT Cocked up again !!
Following on to this thread, i phoned VAT man again and explained that it appears that everybody does not agree with the info i was given. After further consideration between supervisors etc it was then deemed to be outside of the scope for VAT. Quoting this as reference:

V series 1-3 section 7.7 Compensation payments - Introduction
On the face of it, payments of compensation or damages are not
consideration for supplies for VAT purposes. This is because they invariably
amount to financial settlement of losses caused by breach of agreement or
infringement of rights rather than the provision of goods or services. However,
there are circumstances when such payments are consideration for taxable
services by the recipient of the payments.

I have requested this in writing and was told it is about a 15 day turnaround. Good job i'm not in a hurry then.......
S.

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By User deleted
25th Jul 2007 16:25

VAT & Interest
If you had notified the client that interest would be chargeable on late payments whether it was in a contract or separate letter, you must charge VAT. If they were not aware then you don't. I asked this question to the VAT office last week and that is what they told me.

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