HMRC change of view on VAT treatment of compensation and early termination payments – potential need to correct VAT returns
Topical Tax
HMRC change of view on VAT treatment of compensation and early termination payments – potential need to correct VAT returns
Mon 09 Nov 2020
HMRC has recently announced a change of practice regarding the VAT treatment of compensation and early termination payments in Revenue & Customs Brief 12/2020. It suggests that those who have relied on previous (incorrect) HMRC guidance (unless there was a specific ruling) will need to go back and correct the application of VAT (this could cover a period going back to September 2016). However, we understand that HMRC are currently considering the retrospective nature of this change of view.
HMRC’s previous guidance indicated that some payments such as liquidated damages and payments for breech of contract were outside the scope of VAT. These are now considered to be within the scope of VAT.
For further advice on this area, please get in touch with a member of the Mazars indirect tax team.
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