Readers' forum : Loss of office

My sole trader client has been trading as a sales agent for about six years. One of the companies that pays commission on sales to my client has ceased trading in the UK and has recently paid compensation to my client of more than £20 000. This is under the Commercial Agents (Council Directive) Regulations SI 1993/3053 reg 17. The company has insisted that my client should charge them VAT on the sum concerned (and have in fact paid that VAT). As a result the compensation figure has been included on the most recent VAT return filed.

I welcome advice on whether and if so how the compensation is taxable.

A colleague of the client (who trades through a limited company and has apparently received similar compensation before) has advised our client that it represents compensation for loss of office and that ‘his accountant has always...