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VAT early termination fees and compensation payments

16 March 2022 / Elizabeth Small
Issue: 4832 / Categories: Comment & Analysis
74781
Focus, please

Key points

  • Revenue and Customs Brief 2/2022 confirms that fees charged when customers terminate a contract early will be regarded as further consideration for the contracted supply.
  • The new policy takes effect from 1 April 2022.
  • It is important to understand the contract and to know what the consequences are if the terms of the contract are breached.
  • Dilapidations are once again normally outside the scope of VAT.
  • If the contract terminates because the customer pays to end it that payment is subject to VAT.
  • Make sure the contract is clear about when penalties will be charged.

On 7 February HMRC published Revenue and Customs Brief (RCB) 2/2022: VAT early termination fees and compensation payments which replaces its previous RCB 12/2020: VAT early termination fees and compensation payments.

Background

As readers may recall the issue of RCB 12/20 in September 2020 rapidly reshaped the VAT landscape...

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