VAT early termination fees and compensation payments

On 7 February HMRC published Revenue and Customs Brief (RCB) 2/2022: VAT early termination fees and compensation payments which replaces its previous RCB 12/2020: VAT early termination fees and compensation payments.

Background

As readers may recall the issue of RCB 12/20 in September 2020 rapidly reshaped the VAT landscape as the headline principle became that: ‘Most early termination and cancellation fees are therefore liable for VAT. This is the case even if they are described as compensation or damages.’ My article ‘Termination traps’ (Taxation 15 October 2020 page 18) discussed this in detail.

One of the most controversial points raised by RCB 12/20 (as originally published) was the VAT treatment of dilapidation payments. In another article ‘Shifting sands’ (Taxation 30 September 2021 page 8) I explored how HMRC had changed its guidance over the preceding year concluding that HMRC appeared...