Most commercial leases provide for a landlord to recover a dilapidations payment from a tenant on or nearing the end of the lease. Until the September 2020 change of practice, dilapidations payments were generally accepted as outside the scope of VAT, as they were seen as purely compensation (a claim for damages by the landlord against the tenant’s "want of repair") and not consideration for a supply of goods or services and HMRC Notice 742 still states exactly that.
But when HMRC announced the review of the guidance in December 2020 they indicated it was likely to state that dilapidations payments are subject to VAT if the landlord has opted to tax, on the grounds that they represent a fee which the tenant has to pay to the landlord if the tenant has not kept the property in the appropriate state of repair as required by the lease. In other words, in HMRC’s view, dilapidation payments are additional consideration payable by the tenant under the lease.
But this is not how dilapidations actually work in practice, as they are damages for breach of a repairing obligation in a lease, rather than simply a fee payable to the landlord, and all the representative bodies made this point to HMRC.