VAT treatment of damages and compensation payments


Published by a ³ÉÈËÓ°Òô Tax expert
Practice notes
In-house

VAT treatment of damages and compensation payments


Published by a ³ÉÈËÓ°Òô Tax expert

Practice notes
In-house
imgtext

A damages or compensation payment may attract VAT. This depends on exactly what the payment is for. If it is purely compensatory, such that it does not amount to consideration linked to a supply, it will be outside the scope of VAT. If, on the other hand, the recipient of the payment (the claimant) does something in return, this will be a supply for VAT purposes.

As with any payment that may attract VAT, it is important to get the treatment right. If the payment is VATable the claimant will want the defendant to pay VAT in addition to the main payment of damages or compensation. If the payment is made under a settlement agreement, the agreement should provide that any VAT is payable in addition to the principal amount, otherwise the payment will be treated as VAT-inclusive. If the defendant is a business with full VAT recovery it should be able to reclaim the VAT, but only if VAT was in fact due.

Much of the case law

Powered by Lexis+®
Jurisdiction(s):
United Kingdom
Related legal acts:
Key definition:
Damages definition
What does Damages mean?

The monetary compensation awarded by law to a person for the legal wrong done to him.

Read more

Popular documents

Penalties for failure to notify a liability to tax

Penalties for failure to notify a liability to taxFORTHCOMING CHANGE: HMRC has consulted on proposals to amend the rules in Schedule 41 to the Finance Act 2008 on penalties for failure to notify, as part of a number of measures aimed at 'tackling the hidden economy'. The intention is to deter

What is a revenue determination for direct tax purposes?

What is a revenue determination for direct tax purposes?This Practice Note explains:•what a determination (also referred to as a revenue determination) in respect of direct tax (ie a direct tax determination) is•when HMRC might issue a direct tax determination•the quantum of a possible direct tax

When a non-UK company has a UK permanent establishment or becomes UK tax resident, how and when must it

When a non-UK company has a UK permanent establishment or becomes UK tax resident, how and when must it inform Companies House and HMRC? What happens if the deadline is not met?Companies HouseThe statutory rules in relation to overseas companies are set out in Part 34 of the Companies Act 2006 (CA

VAT treatment of damages and compensation payments

VAT treatment of damages and compensation paymentsA damages or compensation payment may attract VAT. This depends on exactly what the payment is for. If it is purely compensatory, such that it does not amount to consideration linked to a supply, it will be outside the scope of VAT. If, on the other