HMRC NEWS
Charging and reclaiming VAT on goods and services related to private school fees
This guidance provides comments around the VAT implications in respect of payments linked to private school fees and input VAT recovery. The example of parents contracting and paying therapists directly and the example of a school supplying education and therapy as separate fees have been updated to add clarity. Information on the VAT implications for fee-paying sixth forms and further education providers has also been updated.
Intermediary registrations for the VAT Import One Stop Shop (IOSS)
Intermediary registrations for the VAT Import One Stop Shop (IOSS) scheme will be available from 1 April 2026. Taxpayers will be able to register as an intermediary for the VAT IOSS scheme to handle VAT registration, reporting, and payments to HMRC on behalf of clients. To do this, a taxpayer must first register itself, then register each client it represents. The scheme applies to businesses selling low-value goods (£135 or less) from outside the EU and Northern Ireland to consumers in the EU or Northern Ireland. Goods must be outside the EU and Northern Ireland at the time of sale. Sales of goods located in Great Britain to Northern Ireland consumers must not be included in IOSS returns and should instead be reported on the businesses UK VAT return. HMRC has now released an extensive collection of guidance for taxpayers who wishes to register as an intermediary and the guidance covers the following:
- Who can register
- Guidance for your client
- How to register
- What to do after you have registered
VAT on goods exported from the UK (VAT Notice 703)
The above guidance advises how and when taxpayers can apply zero rated VAT to exported goods. Some of the guidance contains the force of law. HMRC has updated the guidance with the latest force of law and customs processes including the removal of outdated customers terminology and guidance.
Reclaim or tell HMRC VAT is due when VAT registration is cancelled
The form in the above guidance can be used after a business has cancelled its VAT registration to notify HMRC about VAT it can reclaim. The form can also be used when reclaiming VAT and have VAT due on goods sold to satisfy a debt. Details about how to get assistance completing forms VAT426 and VAT427 have been added by HMRC.
Investment gold coins (VAT Notice 701/21A)
The above guidance sets out the list of gold coins considered as investment gold coins for VAT exemption as detailed in Group 15 to Schedule 9 of the VAT Act 1994. The UK list of coins recognised as investment gold coins has been updated and this is reflected in the above guidance which has recently been updated.
Business promotions (VAT Notice 700/7)
This VAT notice provides detailed guidance around VAT schemes on business gifts, samples and other promotional schemes. HMRC has now updated the guidance to remove the sections covering ‘The linked supplies concession’ following its withdrawal last year.
CASE REVIEW
Court of Appeal
1. Input VAT recovery: New evidence
This case considered the First Tier Tribunal’s (FTT) jurisdiction in a VAT dispute involving FS Commercial Limited (FSC). FSC submitted a VAT repayment return in respect of the VAT accounting period ending 31 August 2018 (08/18). Following ongoing correspondence, FSC did not provide information requested by HMRC, in particular invoices from suppliers supporting an entitlement to reclaim VAT. HMRC raised historic assessments denying input VAT on basis that there was insufficient evidence to support previous claims.
As FSC prepared its case for a hearing at the FTT it sought to include ‘tens of thousands of invoices in its List of Documents’, presumably on the basis to evidence its right to deduct input VAT. The FTT and subsequently the Upper Tribunal (UT) concluded that the FTT’s jurisdiction is supervisory only, meaning it can only consider HMRC’s refusal to accept alternative evidence, but it cannot review new evidence to come to a new decision regarding the deductibility of input VAT (appellate jurisdiction). Our summary of the UT decision can be read here.
The Court of Appeal has now upheld the FTT and UT decisions, rejecting FSC’s argument that the existence of an assessment raised by HMRC converted the appeal into one engaging the FTT’s full appellate jurisdiction, enabling it to reach its own decision on the deductibility of input VAT following review of newly introduced evidence. The Court confirmed that where the issue concerns HMRC’s exercise of discretion to accept alternative evidence instead of valid VAT invoices, the Tribunal’s jurisdiction remains supervisory, even if a VAT assessment has been issued. Accordingly, FSC cannot rely on VAT invoices that had not been provided to HMRC before the decision to deny input VAT was issued. The appeal was dismissed.
Constable VAT Comment: This decision is helpful reminder that in cases of alternative evidence disputes the Tribunal’s decision making power is restricted to HMRC’s decision, it will not be able to review any new evidence and override HMRC’s decision based on newly admitted evidence. It will be interesting to see whether FSC appeals to the Supreme Court, despite the Court of Appeal’s unanimous decision, the VAT involved in this case is between £19m and £15m. A Supreme Court decision is final and will settle the ongoing dispute. In addition, this decision also reinforces a wider point that when dealing with HMRC it is important that any agreed deadlines are met and taxpayers should comply with all information requests from HMRC. Where the information request is extensive and difficult to comply with, taxpayers should act proactively and work together with HMRC, seeking agreed extensions of time to provide information to HMRC. Where a taxpayer does not comply with HMRC’s reasonable requests, it can result in adverse outcomes. We would reiterate the Upper Tribunal’s forceful statement from the FSC case stating that “the operation of the VAT system is not a game to be played by taxpayers”.
Upper Tribunal
2. VAT treatment of mobile phone plan bundles
Lyca Mobile UK Limited (LMUK) supplies international pay-as-you-go SIM cards for mobile phones. It sold various ‘plan bundles’ to UK customers comprising access to telecommunications services.
LMUK treated the plan bundles as liable to VAT when and to the extent that the services available under the plan were used and not when the plan bundles were sold. HMRC considered that VAT was due when the plan bundles were sold. HMRC issued VAT assessments for VAT accounting periods between 2017 and 2019 in excess of £50 million. LMUK appealed the decision. The FTT dismissed LMUK’s appeal, although it held that an adjustment to the VAT assessment in relation to VAT charged in respect of certain bundles should have been made.
LMUK appealed against the FTT’s decision. HMRC also submitted a cross-appeal in relation to the FTT’s decision regarding the adjustment to VAT charged in respect of certain bundles. LMUK appealed on four grounds, all of which were dismissed.
The first ground essentially asked the question, “was LMUK making a supply of services consisting of the allowances included in the bundle when it sold that bundle (as HMRC say) or (as LMUK says) was it only making supplies when and to the extent that those allowances were in fact used?”
The UT commented, “The question may be simple, but we are in the world of VAT.” The UT’s decision involved an extensive review of relevant case law and consideration of the arguments put forward by LMUK and HMRC. The UT ruled in favour of HMRC, VAT is due at the time the bundle is sold.
Another of LMUK’s grounds of appeal contended that the plan bundles were electronic multi-purpose vouchers so that VAT only became chargeable when the allowances were actually used to obtain services. The UT ruled that the necessary criteria was not met for the plan bundles to be considered multi-purpose vouchers.
HMRC’s cross-appeal was also dismissed by the UT.
Constable VAT comment: The published decision is a lengthy read and demonstrates the complexities involved in the “world of VAT” on what the face of it would appear to be a simple question, as observed by the Tribunal. Given the substantial VAT sums involved, in the region of £50m, it would not be surprising if LMUK sought leave to appeal this latest decision to the Court of Appeal.
3. VAT treatment of hair loss replacement system
Mark Glenn Ltd (MGL) supplies a “hair loss replacement system” for women suffering serious hair loss. The question previously posed to the First tier Tax Tribunal (FTT) was whether this supply qualified for zero-rating under Schedule 8, Group 12 of the Value Added Tax Act 1994 (concerning drugs, medicines, aids for the disabled etc.). The amount of VAT reported at issue in the VAT accounting periods from 01/18 to 01/24 came to £277,083.10. MGL lost its appeal at the FTT and appealed to the Upper Tribunal (UT). Our summary of the FTT decision can be read here.
The relevant legislation, Schedule 8, Group 12 (Drugs, medicines, aids for the disabled, etc) of VATA 1994 is reproduced below:
“2. The supply to a disabled person for domestic or his personal use, or to a charity for making available to disabled persons by sale or otherwise, for domestic or their personal use, of-
(a) medical or surgical appliances designed solely for the relief of a severe abnormality or severe injury; …
(g) equipment and appliances not included in paragraphs (a) to (f) above designed solely for use by a disabled person
(h) parts and accessories designed solely for use in or with goods described in paragraphs (a) to (g) above;…
- The supply to a disabled person of services of adapting goods to suit his condition…
- The supply to a disabled person or to a charity of a service of repair or maintenance of any goods specified in item 2, 2A, 6, 18 or 19 and supplied as described in that item.
The Notes to the Schedule include the following:
“(3) Any person who is chronically sick or disabled is “disabled” for the purposes of this Group. 2
(4) Item 2 shall not include aids (except hearing aids designed for auditory training of deaf children), dentures, spectacles and contact lenses but shall be deemed to include
(a) clothing, footwear and wigs”.
There were multiple questions posed to the UT, MGL contending that the FTT decision was deficient on five grounds. In very broad terms, the FTT had not considered hair loss to be a disability hence the appeal failed as per note (3) above. On that basis it had rejected zero-rating. The UT took a different view. Three of the grounds for appeal were rejected but two were accepted by the UT. The successful grounds are noted below.
Under “GROUND 1: FAILURE TO GIVE REASONS”, the UT considered that the explanations for why the FTT failed to consider the condition under discussion a disability were inadequate requiring inference and conjecture. Ground 1 of the appeal was allowed.
Under “GROUND 3 – FTT ERRED IN APPLICATION OF ITEM 3 OF GROUP 8 SCHEDULE 12 VATA 1994” MGL argued the FTT erred in finding that the adapting of the hair fibres into a mesh to specifically address the individual hair loss was not a supply to a disabled person of services of adapting goods to suit the disabled person’s condition. It was reasoned that because the VAT relief relied upon adapting goods this could not apply as the nature of the supply was a service.
The UT considered that Item 3 could not be discounted noting:
“In conclusion we consider the FTT fell into error in its application of Item 3 by ruling out that Item’s application on the misconceived basis that because it had found the overall supply was one of services that Item 3 could not therefore apply.”
The UT allowed Ground three, therefore setting aside the FTT decision and was asked to remake it. The UT commented:
“Standing back, and applying the ordinary meaning of “disability,” we have no difficulty in concluding that the severe hair loss suffered by the service recipients in this case constitutes a disability. It is therefore unnecessary to decide whether such hair loss could also be described as “chronic sickness.”
The UT concluded that the hair system represented services of adapting and maintaining goods (Item 3 of Group 12) for a disabled person allowing the appeal.
Constable VAT Comment: This is a very complex area of VAT law as evidenced by a disagreement between the FTT and UT on a technical analysis. Most supplies zero rated in Group 12 to Schedule 8, VATA 1994 require strict conditions to be satisfied. The legislation can be difficult to interpret, perhaps unsurprisingly often resulting in various Courts reaching different conclusions on the same issue, as seen in the case above. In any case of ambiguity, we would recommend seeking professional VAT advice. Incorrectly treating a supply as zero rated could result in future VAT assessments for underdeclared output VAT, along with potential interest and penalty charges. It will be interesting to see if HMRC requests leave to appeal this decision to a higher authority on the basis that it has concerns that this case may set a broader precedent in terms of the widening of the term ‘disabled person’ in relation to extending the potential scope for zero rating for the supply of services of adapting goods to suit the disabled persons condition.
Please note that this newsletter is intended to provide a general overview of the subject. No liability is accepted for the opinions it contains or for any errors or omissions. Constable VAT cannot accept responsibility for loss incurred by any person, company or entity as a result of acting, or failing to act, on any material in this blog post. Specialist VAT advice should always be sought in relation to your particular circumstance.