Commentary

V7.421 Supply—compensation

Part V7 Tax planning
Part V7 Tax planning | Commentary

V7.421 Supply—compensation

Part V7 Tax planning | Commentary

V7.421 Supply—compensation

The issue of compensation is a potential problem – and almost every business will, at some time, have to deal with a situation where something has gone wrong, and a distraught customer is looking for financial recompense.

The basic principle is to consider whether the compensation payment relates to a specific taxable supply of goods – or whether the payments are compensatory, eg for distress caused. See Examples 3 and 4.

Example 3

Garage Doors Ltd supplied a customer with a garage door that had a loose nut in it. The charge was £1,000 plus VAT. As a consequence of the

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