Taxation logo taxation mission text

Since 1927 the leading authority on tax law, practice and administration

VAT treatment of termination payments

13 October 2020 / Elizabeth Small
Issue: 4764 / Categories: Comment & Analysis
Termination traps

Key points

  • HMRC has changed the VAT treatment of payments arising from early contract termination to make them a taxable supply.
  • Effect of the change on landlords and tenants.
  • Problems may arise for landlords that have tried to help tenants during lockdown.
  • The change of treatment is retrospective so VAT adjustments may be required for the past four years.

At its heart VAT is a straightforward tax on consumption. Suppose a modern day Oscar Wilde (a long-time resident of Chelsea) buys a suit from Liberty (a VAT-registered shop) and is charged an amount plus VAT. He wears that suit to a meeting with his solicitor who is advising him about his libel action and he is charged an amount plus VAT for the meeting.

If his libel action succeeded and he won damages that would be pure compensation; it would not be a payment for a VATable supply by Oscar...

If you or your firm subscribes to, please click the login box below:

If you are not a subscriber but are a registered user or have a free trial, please enter your details in the following boxes:

Alternatively, you can register free of charge to read a limited amount of subscriber content per month.
Once you have registered, you will receive an email directing you back to read this item in full.

Please reach out to customer services at +44 (0) 330 161 1234 or '' for further assistance.

back to top icon