Insights

UK: Compensation payments and VAT – where are we now?

Mairéad Warren de Búrca 28 Jan 2021

Historically, HMRC has viewed compensation payments as being outside the scope of VAT rather than being consideration for any supply.

Historically, HMRC has viewed compensation payments as being outside the scope of VAT rather than being consideration for any supply.

Following various CJEU and other case decisions finding that similar payments were actually consideration for supplies, HMRC revisited its position on compensation payments. In particular, taking the view that these type of payments will no longer be treated as outside the scope of VAT but will form part of the underlying supply of property rental where they form a cost component to the supplier (i.e. landlord) of making the intended supply available – consequently, either VAT exempt or taxable, depending on the VAT liability of the main property supply. Only where no direct link exists between a payment and a supply will HMRC consider this to be a payment which is outside the scope of VAT.

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Article tags

HMRC | Indirect Tax | UK | VAT