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Shifting sands
Key points
- During or at the end of a tenancy the landlord may serve a terminal schedule of dilapidations on the tenant.
- HMRC used to see the dilapidations payment as damages and not subject to VAT.
- Revenue and Customs Brief 12/20 suggested that damages would be liable to VAT.
- Since then HMRC has revised its guidance and said businesses can continue to treat such payments as not subject to VAT.
- A distinction is to be made between early termination payments which will be VATable and dilapidations which will not be.
Property is typically built on firm foundations. But the principles of taxing property are increasingly precariously constructed on shifting sand and the sand underpinning the VAT treatment of particular payments – noticeably dilapidations – has certainly been shifting over the past year or so.
In this article we assume that the property is used purely for commercial purposes and...
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