Fabian Barth explores the circumstances when businesses need to account for VAT on compensation payments received from customers.
In business, not all interactions with customers go as intended. Where legal rights are violated, one may successfully claim damages or other forms of compensation. The question then arises: do I need to account for VAT when receiving such payments?
The same issue has kept the courts busy for decades. Most recently, the Court of Justice of the European Union (CJEU) has added the latest chapter to the saga with its judgment in the case RHTB CJEU (C622/23) [2024]. Since CJEU judgments are still highly persuasive in UK VAT, where does that leave the law at present?
Categories of compensation
In general, any ‘compensation’ payment could be subject to VAT if it was consideration for a supply of goods or services. The
