The VAT review for October 2020

Compensation payments

HMRC has released new guidance on the VAT treatment of early termination payments. In a change of HMRC policy Revenue & Customs Brief 12/2020 takes the view that most contractual termination payments and early termination fees will now be subject to VAT whether or not they have been described as compensation or liquidated damages.

In MEO (Case C-295/17) and Vodafone Portugal (Case C-43/19) the CJEU held that payments made to terminate a contract early amounted to consideration for taxable supplies. Indeed Vodafone Portugal suggested that any fixed contractual termination payment should be seen as the part of the price agreed by the customer for the services it receives under the relevant contract. These decisions...