HMRC NEWS
Revenue and Customs Brief 5 (2026): Temporary reduced rate of VAT for children’s meals, tickets and family attractions
The government has recently announced a temporary reduction in the rate of VAT from 20% to 5% on selected family-focused activities during the 2026 summer holidays. From 25 June to 1 September 2026, the reduced rate VAT (5%) will apply to:
- Children’s meals eaten in restaurants, cafés and similar establishments
- Children’s cinema, theatre, concert and exhibition tickets
- Admission to many family attractions including theme parks, zoos, museums, water parks and soft play centres etc.
Family tickets that include children may also qualify. The relief only applies to qualifying children’s or family-focused offers, while extras such as merchandise, upgrades and most adult-only tickets remain subject to the standard VAT rate.
There are some further details and conditions to consider before applying the reduced rate VAT to any supplies. If you or your business requires advice, please do not hesitate to contact Constable VAT and we would be pleased to assist.
Tell HMRC about an option to tax on property as part of cancelling your VAT registration
When a business deregisters from VAT and retains a property which has been opted to tax previously, there are further VAT implications to consider. The above guidance provides details of how to tell HMRC about an option to tax on land and buildings as part of cancelling a VAT registration. The guidance has been updated to confirm that VAT will become chargeable, rather than may become chargeable, in specific circumstances. This is potentially a very complex area of VAT and in cases of ambiguity we would recommend seeking professional VAT advice.
Food processing services (VAT Notice 701/40)
The above guidance, in relation to the VAT rules concerning food processing and abattoir services, has been updated at Section 5 and 6 to explain how Agriculture and Horticulture Development Board levies are treated in respect of VAT from 1 April 2022. It has taken HMRC some time (several years) to update this guidance which was updated on 13 May 2026 but takes retroactive effect for a period of over 4 years.
Business entertainment (VAT Notice 700/65)
The above sets out how to account for VAT on entertainment provided by a business. HMRC has recently updated the ‘business entertainment’ section to confirm persons who are and are not employees for the purpose of business entertainment.
Understanding your monthly postponed import VAT statements
This guidance can be used to find out how to understand and use the information on monthly statements, if a business uses postponed VAT accounting to account for import VAT. HMRC has now added information about issues with duplicated entries.
Get your import VAT certificate (C79)
This guidance can be used to find out how to get import VAT certificates (C79), if you have paid import VAT using a duty deferment account. Information about when an import VAT certificate (C79) will be available has been added by HMRC in its recent update.
CASE REVIEW
Upper Tribunal
Single or multiple supply: Dip pots
The Upper Tribunal (UT) in Queenscourt Limited v HMRC considered whether dip pots supplied in KFC takeaway meal deals were separate zero rated supplies or part of a single standard rated supply of hot food. Queenscourt originally treated dip pots as part of a single standard rated takeaway meal; however, in 2019 it submitted a VAT accounting error correction notice (ECN) on the basis that the meal deals were a multiple supply, so where appropriate, component parts such as coleslaw, cookies, yoghurts and dip pots etc, could be zero rated. HMRC agreed and repaid the overdeclared output VAT claimed.
On the same basis, in 2020, Queenscourt submitted a further ECN for more recent VAT periods. This was reviewed by another HMRC officer who took the alternative view that dip pots are ancillary to the supply of hot food and constitute a single supply (hot food and dip pot) within a multiple supply of a meal deal (also including zero rated cookies, coleslaw etc). The officer refused the claim and issued VAT assessments to recover the output VAT HMRC had previously refunded.
Queenscourt appealed these decisions to the First-tier Tax Tribunal (FTT); however, the FTT agreed with HMRC concluding that dip pots formed part of a single standard rated supply because they were ancillary to the hot food supplied and simply enhanced the customer’s enjoyment of it. The FTT believed that a meal deal could contain both:
- Separate supplies for some items (cookies, coleslaw, yoghurts etc)
- A single composite supply for other items (hot food and dips)
Queenscourt appealed the FTT’s decision to the UT on the grounds that the decision was flawed because VAT law requires a binary approach, i.e.
- Either the entire transaction is a single composite supply, or
- Each component is taxed separately (multiple supply)
The appellant’s view was that HMRC could not selectively combine only certain elements of the meal deal, whilst simultaneously treating others as a separate supply.
Following an extensive review of case law, the UT agreed with Queenscourt stating that a supply must either be a single supply, with a single VAT liability, or a multiple supply, with each element in a multi-element transaction being considered separately, with its own VAT liability. The UT concluded that HMRC could not isolate selected elements within a wider multiple supply and treat only those items as a single composite supply. As HMRC had already accepted that other meal deal items were separate supplies, the dip pots also had to be treated separately and therefore remained zero rated. The appeal was allowed.
Queenscourt also made arguments around legitimate expectations, claiming that it was not reasonable for HMRC to revisit previous decisions, i.e. the earlier error correction being processed and refunded; however, given the conclusion of the VAT liability issue, it was not necessary for the UT to address this and left the question to be considered in another case by another Court which has full submissions and the issue would make a difference to the outcome of that appeal.
Constable VAT Comment: Whilst this is another interesting case within the food industry, the underlying VAT issue was not one of the VAT liability of the food item itself, but rather a question of a single or multiple supply, which in turn determines whether the food item was zero rated or not. Perhaps a welcome change to the exceptional amounts of recent case law on VAT liability of food items. The decision is certainly interesting with the UT overturning the FTT’s decision, concluding that where a meal deal supply is accepted as a multiple supply, the decision is final and it is not open to HMRC or taxpayers to ‘pick and choose’ which elements within the overall supply is a single or multiple supply. Instead, all components of that multiple supply will have its distinct VAT liability. Therefore, even if a dip may not constitute a significant aim in itself and it is a means of better enjoying the hot food, if it forms part of a multiple supply meal deal, the dip will be a zero rated food item. This decision may have a significant impact on the fast-food sector and others, and it will be interesting to see whether HMRC appeals this decision to the Court of Appeal. HMRC appears to have conflated various points in this case and the taxpayer suffered from being between an apparent disagreement as to the VAT liability of a supply by two different HMRC officers. It is not unreasonable to expect HMRC to have a clear policy that is consistently applied in this regard, and, presumably, the officer authorising the first ECN would have had to justify the reason for the VAT refund to a line manager. A different officer, and presumably senior colleagues, drawing a different conclusion in relation to the second ECN makes the position very difficult for taxpayers who desire certainty and equitable treatment. Businesses may want to consider submission of protective VAT refund claims whilst HMRC reflects on this decision.
VAT Grouping
In Barclays Services Corporation & Anor [2026] UKUT 211 (TCC) the question of eligibility to join a VAT group and to enjoy the benefits of UK VAT grouping have been revisited following its appeal of HMRC’s rejection of an application to VAT group being dismissed at the FTT.
The facts in summary were that:
- Barclays Executions Services Ltd (BESL) is the representative member of a UK VAT Group.
- Barclays Services Corporation (BSC) is USA company established in Delaware in the USA.
- BSC has a branch in the UK registered with Companies House.
- BESL applied for BSC to join the UK VAT Group.
- The UK VAT grouping rules apply a “whole establishment” or “whole entity” principle. This means that eligibility for grouping extends to a body corporate which is not resident in the UK, but which has a fixed establishment in the UK.
- If HMRC were to accept the application by BESL and BSC for BSC to join the VAT group of which BESL is the representative member, grouping would extend not only to transactions between VAT group members and the UK branch but also between VAT group members and BSC.
- Where taxable supplies of services are made to the partly exempt VAT group by BSC, these are treated as within the VAT group disregard. That means that a reverse charge that would produce significant irrecoverable VAT for the UK VAT group on purchases of cross border services from BSC would not apply.
HMRC sought two lines of argument to persuade the Tribunal that it was correct to deny BESL and BSC the right to be VAT grouped, either that BSC had no fixed establishment in the UK at the time it tried to VAT group or the protection of the revenue powers afforded to HMRC by Section 43B(5)c would apply. A further argument was made, somewhat at odds with HMRCs published views and UK legislation, that the principles of Danske Bank A/S (C-812/19) should apply and, that if VAT grouped, cross border supplies from the branch into the VAT group should be recognised in any case with no VAT grouping benefit to be enjoyed by the business.
1 – Danske Bank
The UTT commenced its deliberation with the Danske Bank argument put by HMRC. In very summary terms, Danske Bank A/S (Danske) was a Danish bank headquartered in Copenhagen but operating in Sweden through a branch. The CJEU concluded that that the Danish VAT grouped head office is a separate taxable person to its Swedish branch. Denmark does not apply whole entity VAT grouping and being VAT grouped was sufficient for the services provided by the head office to the branch to not fall within the disregard for VAT grouped parties or as an intra-entity supply outside the scope of VAT.
HMRC pursuing Danske Bank argument was a difficult path to follow and given short shrift by the UTT. Essentially, HMRC was arguing in contradiction to UK VAT legislation at Section 43A of the VAT Act that expressly provides for whole entity VAT grouping and in direct contradiction to HMRC’s Business Briefs following the Skandia VAT case in 2015 and again in 2025.
This argument was dismissed by the UTT.
2 – The Fixed Establishment point
BSC had little substantive presence in the UK albeit a branch was registered with Companies House. HMRC concluded that it did not have sufficient presence in the UK to be considered a fixed establishment for VAT purposes and the FTT concurred with the absence of sufficient technical and human resource at the time of grouping to constitute a fixed establishment.
The business argued that sufficient resource was present to make a meaningful commercial contribution to the business operation of BSC at the branch location. Arguments were made around “comparable control” i.e. an entity does not need its own human and technical resource if it has comparable control of the resource provided by others and these are contracted such that they cannot be terminated at short notice.
The comparable control test was applied to certain persons later employed by the UK branch but controlled and at the disposal of it. The UTT noted that the vast majority of the time spent (in the taxpayers own words) by principal named persons was not actually for the UK branch. This was a significant flaw in the argument that human resource was sufficiently present for a fixed establishment. That person also was managed by a person who themselves was not employed by the UK branch. An intending trader analogy was made but the UTT could see no authority for that to be sufficient in terms of the fixed establishment point.
The UTT conclude that there was no UK branch fixed establishment hence there was no legal basis for the UK branch to VAT group.
3 – Protection of the revenue powers
Given that the fixed establishment point was determined against the taxpayer, consideration of this issue was academic albeit it was the alternative reason set out by HMRC for refusal to allow VAT grouping.
The UTT concluded that there would have been a reasonable basis for HMRC to refuse VAT grouping for protection of the revenue. The skeletal at best resource of the branch with no meaningful human or technical resource plus the “financial imperative” mentioned by the business to get the arrangements in place for the tax savings as soon as possible, the UTT thought indicated a revenue risk and it was indicated that this alternative argument would have been accepted for it to be correct that HMRC did not allow VAT grouping.
Constable VAT comment: Financial service and insurance businesses often operate internationally and across borders within a corporate group. For various regimes economic substance is an important factor and similar principles are a marked issue for the VAT place of establishment and place of supply rules. Commercial arrangements must be robust and documented where the place of supply or establishment is critical to a VAT analysis. HMRC may scrutinise arrangements and the analysis must be rational, logical and substantive to avoid difficult VAT scenarios.
First-tier Tax Tribunal
VAT: Online marketplaces
In HBS Enterprises Limited (HBS) HMRC raised VAT assessments that were, ultimately, found to be calculated incorrectly. HBS sells goods via an online marketplace, and it is accepted that where a business that is not established in the UK supplies goods via an online marketplace in the UK that the online retailer or marketplace accounts to HMRC for output VAT.
In this case Amazon mistakenly classified HBS as a non-established taxable person (NETP) for a period and accounted for output VAT on HBS’ supplies. Amazon deducted the output VAT it had paid to HMRC from the sums it passed to HBS. This only happened in relation to some Amazon transactions (not all) between September 2023 and February 2024 and it seems that the most likely explanation for this is that when using the HMRC ‘check a VAT number’ facility HBS had a registered address at HMRC’s office at Ruby House, Aberdeen, suggesting NETP status.
HMRC considered the supplies to be domestic supplies by HBS and subject to UK VAT at the standard rate. It is HBS’ responsibility to account for output tax due. HMRC raised VAT assessments for underdeclared output VAT (allocated to VAT accounting periods using non-standard VAT accounting period dates) as follows:
05/23 £3,621.49 (date range 27 February 2023 to 3 June 2023)
08/23 £9,154.56 (date range 3 June 2023 to 4 September 2023)
11/23 £5,405.56 (date range 4 September 2023 to 5 February 2024)
02/24 £581.76 (date range 5 February 2024 to 4 March 2024)
Total £ 18,763.37
HBS requested an independent HMRC review of the VAT assessments and that decision was upheld and an appeal was lodged.
The Tribunal decision is very long and includes a lot of references to how Amazon collects VAT accounting data; however, the Tribunal found flaws in HMRC’s VAT assessments, which the taxpayer had also identified. There was some double counting on HMRC’s part. HMRC’s calculations took no account of the fact that it was not all Amazon transactions that were recorded in error, output VAT had been accounted for on some supplies, and HMRC had overlooked that some supplies were zero-rated exports.
Because HBS is established in the UK it remains its responsibility to account for VAT correctly, even in a situation where Amazon may have accounted for VAT in error. The Tribunal explained that its responsibility was limited to determining the correct VAT liability of HBS’ supplies. The Tribunal found that VAT was due on some of HBS’s supplies and although Amazon had already accounted for VAT on some supplies, this did not affect the position in law.
At paragraphs 65 of the decision the Tribunal noted ‘We appreciate that the Appellant may think this conclusion is unfair. However, our jurisdiction in this appeal is to determine the correct amount of tax payable by the Appellant. The proper legal position in our judgment is that as the relevant supplies were undertaken by the Appellant as a taxable person registered in the UK, the correct analysis is that the Appellant has to account for output tax on those supplies, irrespective of the mistaken treatment of the same by Amazon’.
Having reviewed the evidence in detail the Tribunal found that HMRC’s assessments required amendment as follows:
05/23 – VAT assessment set aside in its entirety.
08/23 – VAT assessment varied such that output VAT assessed is set aside but £702 input VAT disallowed.
11/23 – VAT assessment is varied and parties seek to agree output VAT due.
02/24 – VAT assessment is varied and parties seek to agree output VAT due.
Constable VAT comment: This decision raises concern with HMRC’s approach when dealing with litigation. The four VAT assessments raised were clearly incorrect with multiple errors made on HMRC’s part. The assessing officer failed to consider output VAT already declared by HBS on its VAT returns in relation to standard rated Amazon supplies. No account was taken of zero-rated supplies, and there were inaccuracies in the date range applied to each VAT accounting period when raising the VAT assessments. For example, the VAT assessment in respect of the VAT accounting period 11/23 covers the dates 4 September 2023 to 5 February 2024 and includes a full two months of transactions after the end of the VAT accounting period. Our assumption is that the assessing HMRC officer would have been required to have the figures prepared checked by a colleague or line manager before VAT assessments were issued. Similarly, once HBS requested an independent review of the decision to raise VAT assessments we would reasonably expect the reviewing officer from HMRC SOLS office to scrutinise the figures presented in detail to ensure that these were accurate and that VAT accounting period end dates aligned. There is no explanation in the decision as to why the assessing officer believed the 11/23 VAT accounting period extended to 5 February 2024. When asked, HMRC’s litigator was unable to explain to the Tribunal precisely how the VAT assessments were calculated, even with the assistance of the HMRC officer who raised the VAT assessments, and who attended the hearing and gave evidence. From reading the decision, HMRC’s VAT assessment of £18.7k will, at best be £5.7k, a reduction of approximately 70%. It would be interesting to know the total cost to HMRC of taking this case, the cost of the Tribunal’s time and no doubt HBS has incurred significant cost in terms of its own resource in dealing with this matter.
This decision also serves as a reminder to marketplace sellers to ensure that the details held by marketplaces are correct.
Status of appeal
In J&T Goods Limited (J&T) the position can be summarised as follows:
- The taxpayer submitted its VAT return in respect of the VAT accounting period 10/24 which recorded input VAT of £38,911.
- On 18 July 2025 HMRC reduced the input VAT claimed on that VAT return by over 97%, to just £878. The reasons for this are not explained in the decision.
- J&T requested an independent review of HMRC’s decision to amend the input VAT figure shown on its 10/24 VAT return.
- On 25 September 2025 HMRC upheld the decision to amend the 10/24 VAT return.
- J&T lodged an appeal with the First-tier Tax Tribunal (FTT).
- On 12 February 2026 HMRC wrote to the FTT advising that it did not intend to defend the appeal and invited the FTT to close its file.
- A week later J&T applied to proceed to a full hearing of the FTT.
- HMRC wrote to the FTT on 31 March 2026 confirming that the decision under appeal has been withdrawn and that there is no longer an appealable matter before the FTT.
The FTT found that HMRC’s decision of 18 July 2025 was withdrawn. It follows that there is not a decision which can be appealed. The FTT refused to accept that the hearing should proceed as if the decision remains but is not defended by HMRC.
The FTT also disagreed with J&T that because HMRC withdrew its decision that means the input VAT reclaimed is payable to J&T. The FTT commented “withdrawal of a decision does not constitute a determination that the taxpayer’s position is correct. It simply removes the existing decision. Any future entitlement will depend on further consideration by HMRC and, if appropriate, a further appealable decision.”
Constable VAT comment: Whilst we do not have full facts about the case, only the limited commentary in the FTT decision, this appears to be an unusual situation whereby HMRC has refused a business credit for input VAT, given an appealable decision, withdrawn that decision but continued to deny the taxpayer the right to the input VAT it claimed on its VAT return. We do not know whether HMRC has issued a new appealable decision. It is interesting to note that this decision has been released very shortly after that in Join Her Limited (15 May 2026). In that case HMRC behaved similarly, refusing input VAT claims, then withdrawing an appealable decision, and issuing new appealable decisions once the Tribunal process was underway. It remains to be seen whether there will be more cases of HMRC using this tactic and costing taxpayers’ unnecessary funds, not only those directly involved in the dispute but the wider taxpayer base funding the cost of HMRC withdrawing and reissuing decisions and taking the time of the Tribunal.
Tribunal Appeals: Costs
Readers may recall the decision in Athena Luxe Limited (Athena) released in December last year. It concerned the taxpayers right to reclaim input VAT in the absence of tax invoices but with alternative evidence that demonstrates goods were purchased to make onward taxable supplies.
Following its successful appeal Athena Luxe Limited made an application for costs in the sum £11.5k. HMRC accepted liability for Athena’s “reasonable and proportionate costs in this matter”. HMRC offered £6k claiming that the sum claimed was disproportionate, bearing in mind that the VAT at stake was just over £15k. The FTT directed that HMRC should pay Athena £9.5k, the Tribunal noting ‘somewhat disappointingly, despite the offer by HMRC, the parties were unable to resolve the costs issue between them’. The matter was determined on the papers rather than a hearing.
Constable VAT comment: This case is a reminder that whilst HMRC is not usually obligated to pay a taxpayers costs following a successful appeal before the FTT, it is sometimes worth considering pursuing costs claim against HMRC, balanced against the cost and resource of doing so.
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.