HMRC have recently updated guidance on changes to VAT on early termination fees and compensation payments. Anyone who charges customers to withdraw from agreements to supply goods or services.
Previous HMRC guidance stated when customers are charged to withdraw from agreements to receive goods or services, these charges were outside the scope of VAT. The guidance has now changed and are now subjected to VAT. As an example, charges made when exiting one contract and entering into another to upgrade a mobile telephone package or handset are therefore liable for VAT.