ARTICLE · 04 APRIL 2012

When Is A Prepayment Consideration For A VATable Supply?

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We recently wrote about the fact that Her Majesty Revenue & Customs ("HMRC") updated their guidance and practice in the United Kingdom regarding the VAT status of forfeited deposits, following a judgment of the European Court of Justice ("ECJ") (ECJ Case C-277/05).

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Gerhard Badenhorst

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We recently wrote about the fact that Her Majesty Revenue & Customs ("HMRC") updated their guidance and practice in the United Kingdom regarding the VAT status of forfeited deposits, following a judgment of the European Court of Justice ("ECJ") (ECJ Case C-277/05).

In that case the ECJ held that a deposit paid by a client to an hotelier for the reservation of a room is not subject to VAT when the client does not arrive and forfeits the deposit. The ECJ viewed the forfeited deposits to be fixed compensation for damages suffered by the hotelier because the contract was not fulfilled as agreed, and that the hotelier did not make any identifiable supply of any service to the client.

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