Interest Payable on VAT Element of Commercial Debt Under Late Payment of Commercial Debts Act 1998

• The court addressed whether interest under the Late Payment of Commercial Debts (Interest) Act 1998 (“LPA”) is payable on the VAT element of a debt.
• KML argued that VAT is not part of the contract price and thus not a qualifying debt under the LPA, citing their contract terms.
• Pharos contended that excluding VAT from statutory interest is void under section 8(1) of the LPA.
• The judge held that unless a contract specifically excludes VAT, the contract price (including VAT) is a qualifying debt under the LPA.
• The court concluded that interest is payable on the VAT element, as the LPA’s purpose is to discourage late payment of commercial debts.

Source: fenwickelliott.com

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

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