My client has been paid twice by a customer for the same invoice. He has tried to contact them but without success as they appear to have gone out of business. Does my client have to declare output tax on the overpayment?
No, where an overpayment is received due to a mistake by a customer it is not consideration for any supply and is therefore outside the scope of VAT (VATSC63600). However, if supplies were going to be made to the customer in future, and the overpayment used as a payment or part payment for those future supplies, then at this point it does become consideration for a supply and liable to VAT.