One important matter to consider is whether payment of ‘compensation’ relates to a specific taxable supply or whether the payment is compensatory, e.g. for distress and damage caused, which is ‘outside the scope’ of VAT.

Money received is not automatically consideration for a taxable supply of goods or services.

However, a large payment from a business normally requires something in return. If that ‘something’ is intangible and hard to define in everyday terms, it is done for a consideration. It includes the granting, assignment or surrender of a right (VATA 1994, s. 5(2)(b)).

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