The BVRLA has produced a new fact sheet to support members with recent VAT changes regarding the treatment of lease or rental agreements that are terminated early.
HM Revenue & Customs’ (HMRC) policy on early termination fees and similar payments changed from 1 April 2022. The guidance manuals on charges, described as compensation or early termination fees, have been changed and make it clear when HMRC considers they are payments for a supply and potentially liable for VAT.
The main impact of the revised policy is that fees charged when customers terminate a contract early will be regarded as further consideration for the contracted supply. For example, if a customer is charged a fee for exiting a vehicle lease or rental contract early, this will be liable for VAT.
Previously these charges were treated as compensation and therefore no VAT was due. The fact sheet also covers the treatment of end of contract damage charges and excess mileage charges.
BVRLA Fact Sheet: VAT - Early Termination Payment Treatment
Members may also find the BVRLA course Understanding Lease Accounting helpful.
