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HMRC will apply the revised treatment of early termination fees and compensation payments outlined in Revenue and Customs Brief 12/2020 from a future date rather than retrospectively.
It will issue revised guidance and a new brief to explain what businesses need to do, including if they have already changed how they treat such payments because of the earlier brief.
Meanwhile, HMRC has stated that businesses can either:
- continue to treat such payments as further consideration for the contracted supply; or
- revert to treating them as outside the scope of VAT.
The department’s change of heart comes after discussions with businesses and their representatives.
