Court settlement for loss of trade & VAT

Court settlement for loss of trade & VAT

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My client (A) won a tribunal case against a  client (B)  who had a contract with them for work to be done over a period of time. B just stopped telling them where the next address to be refurbished was to be.

A won the case & B had to pay costs and damages for loss of profit to A. This has happened. I have no paperwork to show exactly how much was paid for each element.

However, I have to complete their VAT return (A's) by tomorrow night. Is there VAT on the income to A?

It makes the difference between paying or receiving VAT.

Replies (3)

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By mikeyban
07th Apr 2013 09:53

Too complex to offer an opinion without more info.

That aside file the VAT return 'worst case scenario' and adjust on next return after more thought can be given!

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The Business Growth Secret
By anndartnall
07th Apr 2013 10:30

There can't be any VAT

Thanks for your thoughts & input.

Another colleague has privately written the following - which agrees with you Terry.

'VAT is payable on consideration paid in exchange for goods or a service. Broadly speaking, any transfer of the whole property in goods is a supply of goods. VATA 1994 s.5(2)(b) provides that “anything which is not a supply of goods but which is done for consideration (including, if so done, the granting, assignment or surrender of any rights) is a supply of services.”

If there is no direct and immediate link between a payment and a supply of goods or services, no output tax is due. One example is where monies are paid by way of breach of contract for non-performance. In these circumstances, monies are not consideration for a supply of services (and are therefore not subject to VAT) because, by definition, no service has been performed. Conversely, whilst the recipient will not need to account for output tax in respect of the sums received, the payer will not be able to claim an input tax credit in respect of the sums paid. '

 

I'm leaving it out completely, but obviously must add it as income to the Ltd for CT & annual accounts purposes.

Once again, Thanks

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By johngroganjga
07th Apr 2013 11:09

I am sure that's right for VAT.  But, as you say, it will be taxable trading income for CT purposes.  I am sure that the calculation of the sum in question will have taken those two outcomes into account.

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