VAT treatment of damages and compensation payments
VAT treatment of damages and compensation payments

The following Tax practice note provides comprehensive and up to date legal information covering:

  • VAT treatment of damages and compensation payments
  • Is there a supply?
  • Contract termination
  • The Esporta case
  • HMRC’s policy on early termination of contracts
  • Supply of a right to terminate
  • Break fees in share sale negotiations
  • Forfeited deposits
  • HMRC’s policy on forfeited deposits
  • Disputes about previous supplies
  • More...

IP COMPLETION DAY: 11pm (GMT) on 31 December 2020 marks the end of the Brexit transition/implementation period entered into following the UK’s withdrawal from the EU. At this point in time (referred to in UK law as ‘IP completion day’), key transitional arrangements come to an end and significant changes begin to take effect across the UK’s legal regime. This document contains guidance on subjects impacted by these changes. Before continuing your research, see Practice Note: What does IP completion day mean for Tax?

FORTHCOMING CHANGE: We understand that HMRC has informed the Joint VAT Consultative Committee (an HMRC-sponsored forum consisting of HMRC and organisations representing taxpayers) that it intends to withdraw Revenue and Customs Brief 12 (2020) on the VAT treatment of early termination fees and compensation payments. The Brief had caused widespread consternation among VAT practitioners in that it included significant changes to HMRC’s interpretation of the law in this area, and had retrospective effect. We understand that HMRC intends to issue a revised brief in January 2021, that will not have retrospective effect but will apply from 1 February 2021. The revised brief is expected to set out a more nuanced approach, to the effect that early termination and similar payments will be consideration for a supply if they form a cost component to the supplier of making the intended supply available

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