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This guidance note looks at the following areas of VAT:

1. •

   unfulfilled supplies

2. •

   compensation and similar payments

3. •

   fines and penalty charges

For an overview of supply and consideration generally, see the Supply and consideration ― overview guidance note.

For in depth commentary on the legislation and case law in this area, see De Voil Indirect Tax Service V3.104.

In the Spring Budget 2023, the Government confirmed how VAT should be applied to deposits under the deposit return scheme for drinks containers which is due to be implemented in 2025. The Government will legislate to simplify the VAT treatment of deposits charged under the scheme. This will ensure that, where a deposit is charged on a drink that is within the scope of a deposit return scheme and the container is returned for recycling, VAT will not be applied to the deposit amount. Where the container is not returned for recycling, HMRC will collect the VAT on the unredeemed deposit.