Those who have relied on previous (incorrect) HMRC guidance (unless there was a specific ruling) will need to go back and correct the application of VAT. However, we understand that HMRC are currently considering the retrospective nature of this change of view. Previous guidance indicated that some payments such as liquidated damages and payments for breech of contract were outside the scope of VAT, but these are now considered to be within the scope of VAT.
Source: Mazars
