Trading income for VAT purposes

Trading income for VAT purposes

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Company client whose trading income has always been below the VAT registration limits.

Its one and only client has severed their agreement and, as a consequence, has made a compensation payment which will exceed the registration limits.

Notwithstanding that exception from registration can be applied for, will the payment in any case be considered as non-trading income for VAT registration purposes and, if so, does this exempt it from having to apply for exception anyway?

Thanks

Colin

Colin

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By spidersong
12th Feb 2009 16:52

Contracts
If it's truly compensation then it's outside of the scope of VAT and wont be part of turnover, however it may depend what the contract says in relation to the payment. If the payment is consideration for allowing the agreement to be severed, or for not pursuing a breach of contract claim, then it's possibly turnover, if this is a goodwill gesture not in the contract then it's not.

If it's not part of turnover then your client wont have breached the limits and so will not need to apply for exception.

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