I wouldn’t normally post about VAT, however, this has potential to impact leasing companies and funders…
HMRC have amended their guidance on the VAT treatment of early termination fees and compensation payments which could have a serious and wide spread retrospective impact for those involved in the fleet industry.

This swiftly followed a couple of European VAT cases that have applied VAT to termination and compensation payments. Previous HMRC guidance suggested that the amounts were outside the scope of VAT.

If this impacts you then you’re probably already aware of it (and considering what to do!), but if not read here:


The part which piqued my interest is that the new HMRC guidance includes this somewhat sinister comment: “Any taxable person that has failed to account for VAT to HMRC on such fees should correct the error.” This ‘error’, presumably, being to follow HMRC’s previous guidance?