The following Value Added Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:
This guidance note looks at the following areas of VAT:
compensation and similar payments
fines and penalty charges
For an overview of supply and consideration generally, see the Supply and consideration ― overview guidance note.
For in depth commentary on the legislation and case law in this area, see De Voil Indirect Tax Service V3.104.
Broadly, HMRC has suggested that an unfulfilled supply is where a customer does not use a service or collect goods that they have paid for.
A typical example of an unfulfilled supply is a hotel ‘no show’ or cancellation where the hotel retains the deposit for the room even though the room is never used by the customer.
Prior to 1 March 2019, HMRC allowed businesses to treat many payments and part-payments for goods and services as outside of the scope of VAT, where the customer either did not use the services or collect the goods. This was on the basis that there wasn’t the necessary link between the payment and any supply made in return.
With effect from 1 March 2019, HMRC revised its policy. It now takes the view that VAT is due on all supplies of unused goods and services that are not collected / used where the customer has paid for the supply in question. Consequently, no adjustments or VAT claims will be permitted if the supplier retains the payment received and VAT can only be adjusted where the supplier issues a refund to the customer.
HMRC’s policy change came in response to some European case law developments. For example, in one CJEU case, it was held that payments for non-refundable air tickets which were not actually used was still consideration for a supply for VAT purposes.
However, it is worth noting that in an earlier European case, the CJEU had also found that a hotel’s retained deposit was not consideration for a supply when a customer exercised its option to cancel its booking.
**Free trials are only available to individuals based in the UK. We may terminate this trial at any time or decide not to give a trial, for any reason.
Access this article and thousands of others like it free for 7 days with a trial of TolleyGuidance.
Read full article
Already a subscriber? Login
Many people work from home either on an informal or a full-time basis. These people can be employed or self-employed, and their employment status affects the expenses they can claim as a deduction from their earnings.When dealing with someone working from home, it is important to remind him that
Expenditure of a capital nature is not allowed as a deduction when calculating trading profits. Expenditure of a revenue nature is allowable, provided there is no specific statutory rule prohibiting a deduction and the expenditure also satisfies the wholly and exclusively test. See the Wholly and
What is structures and buildings allowance (SBA)?From 29 October 2018, expenditure on constructing a non-residential building or structure, or in certain cases, expenditure on acquiring such a building or structure, qualifies for an SBA. The following note has been updated for the changes announced
The rent-a-room scheme was introduced in the early 1990s to encourage homeowners to take in lodgers.Fundamentally, the rent-a-room scheme is a relief which means that the rent received by an individual from a lodger (up to a prescribed limit) can be exempt from income tax. If the gross rents are
To view our latest tax guidance content, sign in to Tolley Guidance or register for a free trial.