HMRC has finally published its revised guidance on VAT on early termination and compensation payments. From 1 April 2022, there will be fewer situations where HMRC accepts that such payments are outside the scope of VAT. However, HMRC did clarify that dilapidation payments are generally not subject to VAT. Penalties which are punitive and designed to deter termination, should be outside the scope of VAT, but the recent CJEU case of Apcoa(albeit not binding on the UK courts) suggests that contractual penalties may be taxable.
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HMRC has finally published its revised guidance on VAT on early termination and compensation payments. From 1 April 2022, there will be fewer situations where HMRC accepts that such payments are outside the scope of VAT. However, HMRC did clarify that dilapidation payments are generally not subject to VAT. Penalties which are punitive and designed to deter termination, should be outside the scope of VAT, but the recent CJEU case of Apcoa(albeit not binding on the UK courts) suggests that contractual penalties may be taxable.
If you are not a subscriber, subscribe now to read this content.
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