It’s a compensation payment – so no VAT applies?
Is a question that we are often asked and the answer starts with “Well it depends….”
Quite often we find that, actually, the payment being made is linked to an earlier supply which was subject to VAT. Therefore, it can be difficult to break the link between the supply originally made and the payment later received, in order to treat the later payment as “outside the scope” of VAT.
Source: centurionvat.com
