• September 11, 2020

  • Abby Nuttall

HMRC have published a policy paper on VAT for early termination fees and compensation payments.

The brief gives an update on how VAT should be treated on these payments following recent judgements in the Court of Justice of the European Union (CJEU) in Meo (C-295/17) and more recently in Vodafone Portugal (C-43/19).

Previous HMRC guidance said that when customers were charged to withdraw from an agreement to receive goods or services then these were outside the scope of VAT. However, following on from the CJEU rulings they have now advised that VAT would be applicable.

This means that early terminations on lease vehicles will now include VAT.

HMRC have advised this does not affect the tax treatment of full or part payments made on account for a taxable supply, which is explained in Revenue and Customs Brief 13/18.

Businesses making supplies subject to the Tour Operators’ Margin Scheme, can find out more information in the Revenue and Customs Brief 09/19.

The new guidance can be found at VATSC05910, VATSC05920 and VATSC05930.

For businesses they should be able to claim the VAT back, just like they can with the lease payments.

If you have any questions about how this could affect you please give us a call on 01722 322 888.

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