Future possibilities

I have a client (a sole trader) who is owed fees of £20 000 plus VAT for his services as a consultant to a poorly performing company.

The latter company has both cash flow and profitability problems. The client uses the cash accounting scheme so has not accounted for any output tax on the fees in question.

The client’s customer is performing so badly that he is unlikely to ever be paid his fees. He has instead been offered 30% of the ordinary share capital of the company in question in return for writing off the fees.

The value of the shares is difficult to quantify: there is no history of company profits the balance sheet is overdrawn and the only asset of the company is a patent on an idea for a revolutionary new machine that might ‘come good’ in the future.

My question relates to the VAT...