Scope of VAT on payments for unused supplies

With the onset of the Covid-19 pandemic and the ensuing disruption to the economy there have been an increasing number of forfeited deposits and payments for supplies that are never made or used. Determining the correct VAT on those payments can be crucial to the success and survival of businesses.

A fundamental question in determining whether a taxable person is subject to VAT on money received is: why they have received that money? If monies are received as consideration for a supply then they may be subject to VAT; if they are received as compensation and not for a supply then they will be outside the scope of VAT. However this fundamental question is not always so simple to answer particularly when an intended supply is never received; such as in the case of a forfeited hotel deposit or...