14 October 2020

VAT treatment of termination payments: Elizabeth Small writes for Taxation

Tax Partner, Elizabeth Small’s article entitled ‘VAT treatment of termination payments’ was published in Taxation. In her article, she discusses the VAT complications that can arise with deposits on commercial real estate transactions.

Elizabeth explains that "at its heart, VAT is a straightforward tax on consumption" but highlights that VAT can also depart from this principle and sometimes "a recipient may find they are being charged VAT when neither the supplier and recipient is anticipating a VATable supply".

Her article covers four key points:

  • HMRC has changed the VAT treatment of payments arising from early contract termination to make them a taxable supply.
  • Effect of the change on landlords and tenants.
  • Problems may arise for landlords that have tried to help tenants during lockdown.
  • The change of treatment is retrospective so VAT adjustments may be required for the past four years.

Read the full article here.

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