Where compensation relates in part to a service and partly to the compensation of a seller for the losses incurred, an appropriate distribution of the payment within the meaning of Article 10, point 22, of the VAT Act is necessary. The portion of the payment related to the losses incurred is not subject to VAT, while the part of the payment received in return for the services provided is collected at VAT. It is therefore desirable that the transaction agreement clearly specify the compensation to be paid for each part of the debt. Previous HM Revenue-Customs (HMRC) guidelines, which were withdrawn, stated that when customers were asked to opt out of contracts to receive goods or services, these fees were generally not intended for delivery and were outside the scope of VAT. The compensation of the contract assignment benefits was considered as compensation for the shortfall and not as a consideration for a delivery (and therefore no VATable). Transaction agreements are legally binding agreements between an employer and a worker, formerly known as compromise agreements. Whether you are an employer who lets an employee go about to lose his or her job, the advice of a lawyer is essential. It is customary for a settlement agreement to be concluded shortly before or after the end of a worker`s employment. These agreements are sometimes used when redundancies are made, but they can be used in a number of situations. The 82/87 press release was issued with the aim of limiting its application to actual litigation. When a settlement agreement was drafted so that the plaintiff had the right to sue the defendant for a sum of money, it was not a delivery. If the agreement confirms that it does not bring an appeal and out-of-court settlement, a pre-agreed price or a reduction at a pre-agreed price, VAT would be adjusted using the credit mechanism by referring to the finally agreed price.
The situation in which the payment was made by order of the court remained unchanged. What happens if the counter-claims are folded into the comparison? Unfortunately, VAT cannot be denied against each other by offset payments. If a settlement agreement is expressly for the payment of a claim X and counter-contest Y, Y being VATable, but X no, you cannot deduct Y from X and say that the sum is not VATable. However, if a termination payment was not made under the terms of the original contract, the separate termination agreement entered into at the time of termination indicated that the payment was in exchange for a “right of termination” of VATable. Remember, a silent contract is an inclusive VAT contract, and it is too late for the recipient to go back for that extra 20% once the contract is signed. In practice and to the detriment of the seller who receives a settlement, it appears that parties to an out-of-court settlement are often not informed of the VAT treatment on compensation and, as such, do not take into account the VAT component in the agreement or agreement. If the transaction agreement does not specify whether the compensation is included or VAT-free, the compensation is considered to be VAT included at the standard rate of 15% within the meaning of Section 64 of the VAT Act. The supplier seller, i.e. the recipient of the payment, is therefore obliged to pay VAT and cannot recover the amount of VAT from the other party in addition to the compensation already agreed under the transaction agreement. This is in line with the approach taken so far by our courts, which have found that the VAT obligation applies to the supplier seller and not to the recipient with regard to a turnover for which VAT must be paid.