16 August 2021 
Andrea Marshall, Tax Specialist
Update 10/8/21
Please see this News Article for a further update.
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Revenue and Customs Brief 12 (2020): VAT early termination fees and compensation payments
HMRC have now updated this Business Brief and the Policy paper that came out with it confirms that the changes that were announced will now be applied from a future date:
After communication from businesses and their representatives, HMRC has decided to apply the updated VAT treatment set out in this brief from a future date.
We will issue revised guidance, and a new Revenue and Customs brief to explain what businesses need to do as shortly. This will include guidance on what to do if they have already changed how they treat such payments because of this brief.
Until that guidance is issued businesses can either:
One point is clear though; where universities have contracts in place either as supplier or purchaser there is now a risk that "termination" or " compensation" payments will be subject to VAT, presumably where the underlying supply in the contract is subject to VAT. Further analysis on this issue will be provided.
