HMRC Updates Its Guidance On The VAT Treatment Of Early Termination Fees And Compensation Payments

Following the European Court of Justice’s (ECJ) rulings in Meo and Vodafone Portugal, HMRC has recently updated its VAT manual and published a brief (https://www.gov.uk/government/publications/revenue-and-customs-brief-12-2020-vat-early-termination-fees-and-compensation-payments/) stating that payments arising out of early contract termination will now be treated as consideration for a taxable supply therefore subject to VAT. This marks a significant change from HMRC’s previous position that early termination payments described as compensation payments would ordinarily not be subject to VAT.

Source: proskauertaxtalks.com