Is Compensation VATable?

Is Compensation VATable?

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We purchased a new car park charging system but have had several problems over the last few weeks. The company has offered to compensate us for any loss of revenue due to this. Do I send them a VATable invoice? I'm thinking not as there has been no supply of goods or services - but I could be wrong (and usually am!).

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By DMGbus
24th May 2012 13:10

A supply or not a supply?

For there to be VAT applicable to money received (as in compensation) there has to be a supply made.

An example of a supply being unexpectedly being made and hence a VAT liability arising was a number of years ago when certain firearms became illegal and gun dealers were compensated for handing no-longer-legal firearams to the Government.   As goods passed from the gun dealers to the Government HMRC successfully argued that a supply had been made and therefore VAT liability arise.

So looking at the current question, the car park... I can not see any supply being made to the car park systems company so I do not see a VAT liability arising.

 

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By Steve Kesby
25th May 2012 10:16

I agree there's no supply...

... from you to the charging system company, but they did make a supply to you and the amount might be argued to effectively be a rebate of part of the price you paid to them, varying the consideration paid for their supply.

That potentially affects your input VAT claim.  HMRC do say though in this situation that no VAT adjustment needs to be made provided both parties agree (Notice 700, para. The only time you wouldn't both agree is if you made exempt supplies. if you do make any exempt supplies though, you might get a more favourable position, by insisting on an input VAT adjustment.

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