HMRC have provided an update regarding the VAT treatment of early termination fees and compensation payments. Under previous interpretation any payments received that related to the withdrawal from agreements under which goods or services were supplied were treated as outside the scope of UK VAT.

However under newly published guidance payments described as compensation or early termination fees are now generally liable to VAT at the standard rate.

If your business receives such payments and are unsure of how these changes will affect you, clarify your position by calling out free VAT helpline.

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