This decision is important for the VAT exemption for medical services and concerns a clinic providing aesthetic, skincare and wellness treatments through a medically qualified director. The FTT had held that the treatments were not medical supplies, largely due to a lack of evidence of medical diagnosis. On appeal, the Upper Tribunal agreed with the FTT’s legal approach but found that it had failed to give proper weight to the taxpayer’s evidence on its diagnostic processes. The appeal was therefore upheld and the case remitted to the FTT to make further findings of fact on how diagnoses were carried out in individual cases.
A win would have overturned a fundamental principle of VAT, that recovery is based on how costs are directly attributable, not looking through to the end of the supply chain. For charities, many of which use VATable trade to support their non-business activities, look-through attribution could have denied them recovery on trading costs.

Timing is key for partially exempt businesses to make sure they are able to recover a fair and reasonable amount of VAT on costs. If a special method is required, it cannot be applied retrospectively and can take many months to agree. There is scope to use a Fair and Reasonable Override, if the standard method produces a grossly unfair result, but only if the ‘unfairness’ is at least £25,000.

Any business with new exempt activity, needs to think about VAT recovery straight away and not at the year end.

VAT grouping legislation gives HMRC the power to prevent a person joining a VAT group and remove an existing member from a VAT group.  HMRC will not use their protection of the revenue powers if the revenue loss follows from the normal operation of VAT grouping. 

HMRC has updated VAT Notice 700/2 to clarify what is meant by revenue loss, being VAT that is not charged when one company in a group, sells to another company in the same group.  This usually happens when a company in the VAT group cannot reclaim all the VAT it pays, by virtue of making exempt supplies.

HMRC has now said it will use its powers if it looks like the main reason for grouping is to ignore supplies from a company’s overseas branches, to other members of the group.

In a festive boost for the not for profit sector, Hotel la Tour lost its appeal to the Supreme Court about VAT on share sale costs. HLT had argued that they would use the proceeds for the purpose of future VATable activity and should be able to claim back VAT on sale costs even though the sale of shares is exempt from VAT.

A win would have overturned a fundamental principle of VAT, that recovery is based on how costs are directly attributable, not looking through to the end of the supply chain. For charities, many of which use VATable trade to support their non-business activities, look-through attribution could have denied them recovery on trading costs.

Last week, the EU Commission announced the introduction of a €3 customs duty per item, on e-commerce packages below €150, from 1 July 2026.

The new duty will help protect the competitiveness of European businesses by levelling the playing field between e-commerce and traditional retail and is not unexpected, given all the recent talk around removing the duty de minimis for low value consignments.

Morrisons lost a long running case against HMRC after the First Tier Tribunal ruled rotisserie chickens are subject to VAT at 20%, this is on the basis the hot product is kept well above ambient temperature in specially designed packaging. Morrisons had argued the zero-rate applied on the basis the customers mainly consumed the products later, either reheated or cold.

Morrisons also claimed legitimate expectation applied, where their VAT treatment relied on the perceived assurance following in person discussions with HMRC including store visits between 2012-2014, and therefore it would be unreasonable to make retrospective assessments. The Tribunal found there was material non-disclosure by Morrisons during those meetings and therefore legitimate expectation did not apply.

In a recent First Tier Tribunal decision, an importer of scientific equipment into the UK, for repair and servicing, has had its appeal dismissed for a reclaim of £8.5m import VAT.  

As the importer was not owner of the goods, even though it paid the import VAT, HMRC disallowed the reclaim, stating that only the owner of the goods can recover import VAT, which was upheld in the Court.

Healthcare providers should be engaging with their recruitment suppliers to consider whether protective claims are appropriate for past supplies.

In Ferrero UK Ltd v HMRC [2025], the First Tier Tribunal (FTT) found that Nutella Biscuits were not chocolate-covered and were therefore zero-rated for VAT.  

Although a thin chocolatey ring was visible between the biscuit layers, it sat below the surface and did not form part of the external coating.  The outer surface of the biscuit consisted entirely of the biscuit cup and disc lid, so the product did not fall within the confectionery exception for biscuits either wholly or partly covered in chocolate and could be zero-rated.  
This case highlights how product design and manufacturing detail can determine VAT treatment.

HMRC continue to target tax losses in labour supply chains.  

In particular, they are challenging VAT recovery by businesses who hire in workers from outsourced suppliers and VAT charging in the healthcare and welfare sectors.

For construction businesses, making sure there are no grounds for HMRC to disallow a repayment VAT claim, should be a high priority to protect cashflows.  Any business in the healthcare or welfare sector, needs to be aware of where in the supply chain VAT must be charged.

A recent tribunal case has opened the possibility for VAT rebate claims for healthcare providers. For many years, HMRC have ignored the item in the VAT Act which exempts the provision of a deputy for a medical practitioner, saying that it is not what the law was meant to say. Notwithstanding that, the Isle of Wight NHS Trust have won a tribunal case on the basis that the wording of that specific item is very clear, even if it is at odds other parts of the legislation. It is to be anticipated that legislation will be amended so that supplies will be taxable going forward.

Healthcare providers should be engaging with their recruitment suppliers to consider whether protective claims are appropriate for past supplies.

The Court of Appeal has ruled against Hippodrome Casino Limited (HCL), rejecting the attempt to deduct residual input tax relating to free food, drinks and free £5 chips given to customers who were gambling at the Casino. Hippodrome was unsuccessful in demonstrating that the floorspace-based Standard Method Override (SMO) provided a more accurate reflection of economic use, compared to the standard method, which remains the default for VAT apportionment.

The Court of Appeal upheld the Upper Tribunal’s decision to reject the floorspace method, stating that the taxpayer didn’t sufficiently address HMRC’s argument (dual economic use of areas supporting both taxable and exempt supplies) and the Judge stated that she was ‘not persuaded that HCL’s floorspace approach was correct’.

The taxpayer was a wholesale supplier of hotel accommodation. The transactions featured instant payment for rooms, via a virtual credit card. As payment was not dependent on the production of invoices, the taxpayer experienced issues with obtaining invoices from hotels supplying rooms. The taxpayer was not in receipt of VAT invoices and unable to claim for input tax recovery. The input tax at stake was over £10m.

The Court reviewed HMRC’s alternative evidence policy and found inconsistencies within the documents and concluded that they did not properly address cases where there was no invoice, rather only focusing on when the invoice was not valid in form.

The judicial review claim was upheld and HMRC were ordered to use its discretion in authorising input tax recovery in these circumstances.

It was recently announced that the Government is suspending preferential rates of customs duty on certain imports under the DCTS.  This will affect countries in the Standard Preferences tier of the DCTS, which is currently India and Indonesia and will be effective from 1 January 2026 until 31 December 2028.

This will be relevant to businesses that are based in the UK and import goods from a DCTS standard preference beneficiary country, or are based in a DCTS standard preference beneficiary country and export goods to the UK.

From 1 January 2026, UK businesses exporting goods into the EU under DDP (Delivered Duty Paid) terms via France, will face changes that will impact VAT reporting.

The use of a limited fiscal representative will be abolished from 1 January 2026 for non-EU companies, meaning UK businesses will no longer be permitted to use French fiscal representatives under Regime 42. To continue importing goods through France, for onward supply to the EU under DDP terms, UK businesses must register for VAT in France and file French VAT returns.

A gamer has managed to turn gold, being a currency designed for an online computer game, outside the game, by purchasing it from players and reselling it to other players. The Lithuanian tax authorities assessed the gamer for the VAT.

So is this ‘gold trading’, the purchase and sale of electronic services and therefore an exempt currency transaction, or a transaction in respect of in-game gold, being a second-hand margin scheme sale, or a multi-purpose voucher?

The AG has concluded that in-game gold was not deemed to be a voucher, however, did not conclude on whether the transactions would fall within the exemption, nor whether they could be second-hand supplies and referred it back to the commission. Watch this space.

The Supreme Court explored the interaction between VAT group rules and timing of taxable supplies.

The Court held that section 43 of the VAT Act, does not disregard all payments for continuous services simply because they were earned while both parties were in the same VAT group. If the time of supply falls after the supplier has left the group, VAT can be chargeable.

With regards to the time of supply rules, the Court held that invoicing/payment after exit can trigger a VAT charge, even if the work was done earlier when still in the group.

This decision has significant implications for those operating within VAT groups, specifically businesses in relation to deferred consideration and success fees.