Consideration ― specific situations

Produced by Tolley
Consideration ― specific situations

The following Value Added Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Consideration ― specific situations
  • Donations
  • Payments for unfulfilled supplies
  • Deposits
  • Grants
  • Gratuities, tips and service charges
  • Salary sacrifice
  • Fines and penalty charges
  • Capital contributions
  • Ex gratia payments
  • More...

IP COMPLETION DAY: 11pm (GMT) on 31 December 2020 marked the end of the Brexit transition / implementation period entered into following the UK’s withdrawal from the EU. At this point in time, key transitional arrangements came to an end and significant changes began to take effect across the UK’s VAT and customs regime. This document contains guidance on subjects potentially impacted by these changes. Before continuing your research, see the Brexit — overview guidance note.

This guidance note provides an overview of the VAT treatment of specific situations and whether the payment will be viewed as consideration. This note should be read in conjunction with the Supplies of goods, Supplies of services and Consideration guidance notes.


See the Grants, donations and subsidies guidance note.

Payments for unfulfilled supplies

HMRC has reviewed its policy with regard to the correct VAT treatment of payments made in respect of unfulfilled supplies. Prior to 1 March 2019, HMRC allowed businesses to treat many payments and part-payments for goods / services as outside of the scope of VAT, where the customer either does not use the services or collect the goods.

The CJEU judgements in Air France-KLM and Hop!-Brit Air SAS and Firin OOD did not however support HMRC’s VAT treatment as the Court concluded that these payments were liable to VAT at the appropriate rate, and the value of the supply must not be reduced if the supplier does not issue a refund to the customer. The payment cannot be treated as compensation by the supplier for a perceived loss when the customer does not in fact use the goods / services supplied.

With effect from 1 March 2019, HMRC has revised its policy. From this date, VAT will remain due on all supplies of unused services and goods that are not collected where the customer has paid for the supply in question. No adjustments or VAT claims will be permitted if the supplier retains the payment received. VAT can only be

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