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Readers' forum : Going to penalties

05 June 2018
Issue: 4650 / Categories: Forum & Feedback

Is a consultant’s fee balance charge subject to VAT?

I act for an IT consultant and have received mixed messages about a VAT problem. Basically he offers a telephone and email service to local companies charging in ten-minute units. Some of these companies he acts for are partially exempt so cannot claim input tax. When the consultant takes on a new client the letter of engagement says the client must use his services for at least ten hours a year at a rate of £120 an hour plus VAT.

If at the end of the 12 months the client has not achieved this figure he bills for the outstanding balance namely £1 200 less the amount invoiced during the year. But is this balancing fee subject to VAT?

One of our partners says it is outside the scope of VAT because it is like a penalty charged to the client and it...

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