The UK tax authority, HM Revenue & Customs (HMRC), began applying new guidance on the VAT treatment of compensation/early termination payments on 1 April 2022 and all businesses had to adopt the revised treatment by that date. Based on the revised policy, fees charged when customers terminate a contract early will be regarded as further consideration for the contracted supply and, therefore, subject to VAT. This change was prompted by a review of HMRC’s previous approach following the Court of Justice of the European Union’s decisions in Meo (C-295/17) and Vodafone Portugal (C-43/19), which highlighted that HMRC’s approach may differ from that applied in other jurisdictions.
Source BDO
See also Roadtrip through ECJ cases: Focus on ”Termination/cancellation fees” (Art. 90)
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