Q&As

Coronavirus (COVID-19)—what are the potential VAT consequences of cancelling or aborting contracts due to coronavirus?

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Produced in partnership with Bryn Reynolds of Simmons & Simmons and Jo Crookshank of Simmons & Simmons
Published on LexisPSL on 03/04/2020

The following Tax Q&A produced in partnership with Bryn Reynolds of Simmons & Simmons and Jo Crookshank of Simmons & Simmons provides comprehensive and up to date legal information covering:

  • Coronavirus (COVID-19)—what are the potential VAT consequences of cancelling or aborting contracts due to coronavirus?

Coronavirus (COVID-19)—what are the potential VAT consequences of cancelling or aborting contracts due to coronavirus?

Government recommendations on social distancing, self-isolation in the case of sickness, and business closures has resulted in many typical business and social activities being postponed or cancelled altogether by both customers and suppliers.

Where a contract is cancelled, any supplies from a VAT perspective will no longer take place, requiring (depending on the terms of the particular contract) a refund of any payments and the cancellation of invoices or credit notes as appropriate. For more information on how a taxable person who has accounted for and paid VAT on a supply, but who is not ultimately paid for that supply, may claim a refund of the whole or part of the VAT they have already accounted for, see Practice Note: VAT bad debt relief.

Where payment for an anticipated supply has been made but the customer no longer takes up the anticipated services, it is possible that the correct analysis is that the supplier has actually complied with the contract and made the anticipated supplies, simply by holding out the opportunity of the services to the customer. HMRC’s position

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