HMRC’s new guidance
HMRC’s new guidance has also come in for much criticism from professional advisers. It refers only to taxable payments, but if the underlying supply was exempt or zero-rated there’s a good case to argue no VAT would be due. If a tenant was looking to terminate a lease, the VAT due would depend on whether the landlord had 'opted to tax' the property for VAT purposes. If an option had been made the payments would be subject to VAT; otherwise, payments ought to be exempt. Unfortunately the guidance is not clear on this.
In addition, there is some doubt as to whether the principles in the cases to which HMRC refer, which concerned mobile phone contracts, actually apply across the board to all compensation payments.
These points have been raised with HMRC and we understand that they have instructed officers not to act on the new guidance until such concerns have been addressed. We will update this article when we have more information.