Contract termination fees can be a bitter pill to swallow when you just want out of an expensive agreement.
What’s worse is that some suppliers will charge VAT on top of the cancellation fee, while others will not. The law has been a bit of a mess, but HMRC has laid down firm guidance on how termination fees should be treated for VAT purposes from 1 April 2022.
From this date any fee paid on the early termination of a contract should follow the VAT treatment of the main supply under that contract. Where your business charges cancellation fees, say for gym membership, hiring of rooms or restaurant tables, you need to review your VAT policy to ensure that it is in line with the new HMRC guidance from 1 April.
If you need help with this or any other accountancy, tax and business issues, get in touch for a no-obligation discussion – see our Contact Us page for how to reach us.
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