In an update to an earlier article about a VAT reclaim opportunity, HMRC’s appeal to the UT has been allowed.  Boehringer made payments to the DHSC under schemes to control NHS spending on branded medicines.  Boehringer said that these payments reduced the consideration subject to VAT on its supplies, but HMRC contended this.

The FTT agreed with Boehringer, but the UT has now overturned this decision, saying that the payments were not linked closely enough to the supply chain.  HMRC’s appeal has therefore been allowed, and we wait to hear whether Boehringer will be given permission to appeal.  The reclaim under appeal was for £21.5m, so this is a significant development.

From 6 April, a new payment exclusion from the Construction Industry Scheme (CIS) will affect payments to a variety of entities, including housing associations, for building work.  The change will take the payment outside the scope of CIS and as a result, the building work will be outside the scope of the Domestic Reverse Charge.

Previously, businesses giving stock to clothing or food banks could be faced with a VAT charge.  A new relief means that many items can now be donated without triggering a charge.

The Government is introducing a Vaping Products Duty (VPD).  The duty will apply to vaping liquid which contains nicotine and either, or both, glycerine and glycol, or any liquid that is intended to be vapourised by a vape and is not a medical or tobacco product.

It will be charged on vaping products that are produced in, or imported into, the UK at a flat rate of £2.20 per 10 millilitres of vaping liquid, regardless of how much nicotine is contained in the product.

From 1 April 2026, any business involved in the manufacture or importation of vaping products, or the storage of duty-suspended vaping products, must apply for approval from HMRC to continue operating lawfully, for when VPD and the Vaping Duty Stamps Scheme come into effect on 1 October 2026.

In a recent FTT decision in Charge my Street Limited, the Court found that electric vehicle charging provided at public charging stations, should be at the reduced VAT rate of 5%.

This puts the supply of electricity at public charging stations on a par with domestic fuel and power.  The argument centred around HMRC’s wording in the legislation in respect of what ‘any premises’ meant and also whether the supply met the de minimis test.

HMRC may still appeal the decision, but in the meantime, claims for overpaid VAT should be considered, if any of your clients provide electric vehicle charging services in this way.  A more detailed article will be published soon.

HMRC have decided not to appeal the FTT decision in Sunwarriors, that found that powdered vegan food supplements are zero-rated.  HMRC tried to argue that the product was a sports drink, but the FTT disagreed.  If you have clients who supply these types of products, do pick up the phone or drop them a note, as there may be an opportunity for claims for overpaid VAT.

In Ponders End International Limited,the FTT considered whether HMRC acted reasonably in requiring a financial guarantee before releasing imported goods.  The appellant had imported garments, footwear and bags, declared as originating from Taiwan, but HMRC identified discrepancies in origin, weight allocation, commodity code and doubted the unusually low declared values (reflecting a 92.5% discount).

Although HMRC later accepted the declared values as correct and refunded the guarantee, the FTT held that it was reasonable for HMRC to require the guarantee as a precautionary measure.

This case highlights the importance of accurate customs declarations, origin, classification and valuation.  It also shows how HMRC can exercise their powers, resulting in additional financial liabilities and delays.

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.