Compensation Payment

[T.C.]

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.

[peugeot]

You could post it against the expenses or you could show it as other income.

Kind regards
Steve

[T.C.]

If I call it income, then what about the VAT, can this still be zero rated?

[rjww85]

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.]

Thanks. That is very helpful! :thumbup: