Early termination fees and compensation payments
Changes to the rules for charging VAT on termination fees and some types of cancellation fees came into effect on 1 April. They apply to businesses that charge their customers to withdraw from agreements to supply goods or services.
Such charges were previously outside the scope of VAT. However, fees charged when customers terminate a contract early will now be regarded as further consideration for the contracted supply.
For example, if a customer is charged a fee for exiting a mobile phone contract early, or if they terminate a car hire contract early, it will be liable for VAT.
Compensation payments such as most types of dilapidations payment remain outside the scope of VAT. Working out the correct VAT treatment is still complicated so care needs to be taken. More detail at Revenue and Customs Brief 2 (2022): VAT early termination fees and compensation payments on gov.uk.
End-customer claim refunds of VAT wrongly charged
Businesses should remember that they are not entitled to claim recovery of VAT that should not have been charged in the first place, or was charged at the wrong rate.
The only recourse for reimbursement is to go back to your supplier and ask for a refund.
Seeking reimbursement from HMRC, when a supplier refund is proving to be impossible, ceased to be available post-Brexit. More detail at Revenue and Customs Brief 4 (2022): end-customer claim refunds of VAT wrongly charged on gov.uk.
Revised guidance on VAT grouping registration
There’s new guidance for businesses that have applied to create or alter a VAT group but are experiencing a delay in hearing from HMRC. You should treat the application as provisionally accepted on the date you submitted it online or the date it should be received by HMRC if you submitted it by post, and account for VAT accordingly.
While waiting for a grouping registration, you may receive an automated assessment letter asking for payment of any automated assessments or notification of a default surcharge, but no action is required.
If you submitted VAT returns to HMRC using previous registration numbers, you do not need to take any steps to change this. More detail at Revenue and Customs Brief 5 (2022): revised guidance on dealing with VAT grouping registration on gov.uk.
Can we help?
For more information and advice about these or other VAT issues, contact Shipleys VAT team on e: vat@shipleys.com or by calling one of the Shipleys offices.
Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary.
Copyright © Shipleys LLP 2022
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