Late fee penalty

My firm’s standard terms of business include a £100 penalty for self-assessment information provided after a certain date and a similar £100 penalty (or 10% if lower) for fees paid more than six weeks after the invoice date. The latter is waivable at the firm’s discretion.

I have always considered the former as VATable (either charging £100 plus VAT or if we forget treating £100 as the VAT-inclusive payment) and the late-payment penalty as being outside the scope of VAT. However I am now beginning to have my doubts. Can readers enlighten me?

Would the position be any different if the late-payment fees were called interest (or calculated as if they were interest)? This latter point would be relevant to some of our clients who occasionally receive statutory interest for fees paid late.

Query 17 660 – Giggsy

Reply from Castlegate

The first question is whether the...