HMRC NEWS
Help with VAT place of supply of services in the oil and gas sector – GfC18
HMRC has recently published GfC18 which can be used to find out how to decide the VAT place of supply for services in the oil and gas sector. The guidelines are aimed for VAT registered businesses in the oil and gas sector and may also be helpful to businesses operating in wind, carbon capture and storage. It explains HMRC’s recommended approach to deciding the place of supply of services in this sector.
Insurance (VAT Notice 701/36)
The above guidance can be used to find out about the VAT liability of insurance transactions and insurance related services. The information about the VAT treatment of guarantees and warranties in paragraph 3.7.2 has been updated by HMRC.
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 recently updated information on official evidence in paragraphs 6.2, 7.1 and 7.2.
Tell HMRC about an option to tax on property as part of cancelling your VAT registration
HMRC has recently published a new guidance setting out how to tell HMRC about an option to tax on land and buildings as part of cancelling a VAT registration.
Domestic reverse charge procedure (VAT Notice 735)
This guidance details the VAT domestic reverse charge procedure which applies to the buying and selling of certain goods and services. HMRC updated the guidance by adding a new section ‘3.5.4 Electric vehicle charging’ which explains why the reverse charge does not apply to the supply of electricity at a charging point for electric vehicles.
Fulfilment House Due Diligence Scheme registered businesses list
The above link cane be used to check if the business that stores your goods in the UK is registered with the Fulfilment House Due Diligence Scheme if you’re a trader based outside of the UK. The list has been updated with 8 additions and 7 removals.
CASE REVIEW
First Tier Tribunal
1. Pre-registration input tax recovery
This case concerns Aspire In The Community Services Limited’s (ACSL) pre-registration input tax recovery. Aspire in the Community Ltd (ACL) was formed in 2009 and it was providing VAT exempt welfare services and it was registered with Care Quality Commission (CQC). ACSL was incorporated in 2011; however, it was not CQC registered and the scope of its services widened to include standard rated supplies. ACSL and ACL formed a group VAT registration with ACSL being the representative member. ACSL only commenced making taxable supplies after it was VAT grouped, it made no supplies prior to that and ACL only made VAT exempt supplies.
On the VAT group’s first VAT return, ACSL included a claim for pre-registration VAT incurred prior to the effective date of registration (EDR). The usual time limits (4 years for goods and 6 months for services) and partial exemption calculations, based on a use-based method, was applied by ACSL to calculate the amount of post registration input tax and pre-registration VAT deductible. However, HMRC refused repayment of part of the input tax.
Pre-registration input tax is only deductible in accordance with HMRC’s discretion as provided for by Regulation 111, as under the normal input VAT recovery rules (Sections 25 and 26 of Regulation 101) only a ‘taxable person’ is entitled to recover VAT as input VAT which ACSL was not at the time input tax was incurred. In this case, it was common ground that HMRC allowed all of ACSL’s input VAT claimed to be ‘treated as input tax’, i.e. HMRC exercised its discretion in accordance with Regulation 111.
The only dispute that arose is how much input tax was actually deductible based on the normal input VAT recovery rules blended with HMRC’s perceived rules for pre-registration claims. HMRC argued that the pre-registration VAT exempt use of the goods and services should be taken into account in addition to the post-registration use which was partly taxable. ACSL took the view that partial exemption should solely consider post-VAT registration use (or intended use).
The First Tier Tribunal agreed with ACSL concluding that once HMRC allows pre-registration input VAT to be “treated as input tax” in accordance with Regulation 111, it is then treated as input tax in the period in which it is claimed and there is no statutory basis or discretion available to HMRC to take pre-registration VAT exempt usage into account. The recovery rate is determined in accordance with post-registration partial exemption calculations. The appeal was allowed.
Constable VAT Comment: This is certainly a very interesting case and we will await to see whether HMRC decides to appeal to the Upper Tribunal or simply amend its guidance or the application of its discretion. It seems the Tribunal concluded that once discretion is exercised under Regulation 111, the usual input VAT recovery rules apply without further discretion. Perhaps HMRC will take an alternative approach moving forward and incorporate pre-registration use at the discretion stage (Regulation 111) already. This is something we have seen HMRC apply with private schools following the change in VAT liability of their supplies, where the guidance specifically states that “HMRC has exercised its discretion to allow some recovery of this VAT”, implying that the apportionment for pre-registration use must be done under the ‘discretion’ of HMRC, rather than in accordance with the usual input VAT recovery rules which does not permit that. This was also highlighted by the Tribunal which commented: “ If HMRC consider that a fair and reasonable apportionment needs to be made between post- and pre-EDR use prior to usual input VAT recovery rules … this could arguably be done as part of the exercise of its discretion under Regulation 111.” However, that was not the basis of this appeal and the appellant was therefore successful.
2. VAT liability of public EV charging
In the case of Charge My Street Ltd (CMS) the First-tier Tax Tribunal (FTT) found that the reduced rate of VAT (5%) could apply to supplies of electricity via public electric vehicle (EV) charging points.
HMRC argued that the supplies of electricity were subject to VAT at the standard rate (20%), which is HMRC’s current policy as confirmed in its guidance. HMRC’s VAT Notice 701/19 ‘VAT on fuel and power’ reads:
“the recharging of electric vehicles, when using public charging points is always treated as standard rated for VAT, regardless of the quantity of electricity supplied”
It is expected that the FTT’s ruling in this case could have a wider impact for the EV sector; however, it should be noted that decisions of the FTT do not usually set a wider precedent. It will be interesting to see if HMRC seek to appeal the FTT’s decision or whether HMRC will revisit its current policy.
The reduced rate of VAT is available to domestic supplies of electricity. VAT legislation states that supplies of electricity to a customer of less than 1,000kWh per month are always considered to be domestic use.
HMRC argued that the reduced rate of VAT for domestic supplies could not apply for the following reasons:
- the supplies are made in public places
- the rate at which supplies are measured must be considered over the period during which the relevant supply takes place
HMRC also did not accept CMS’ points on fiscal neutrality (individuals should be charged the same rate of VAT regardless of whether they charge their car at home or in a public place).
There was also dispute over who CMS’ customer is. CMS argued that its supplies were made to the drivers. HMRC believed that in some cases CMS supplied its services to a third party, who then supplied the drivers (if that was the case, the 1,000kWh domestic threshold would be breached). The FTT allowed CMS’ appeal in part.
Constable VAT comment: This is an important initial ruling for the EV sector; however, it may not provide certainty if HMRC does not accept the FTT’s decision. it will be interesting to see if HMRC changes its policy or appeals the FTT’s decision. EV charging operators should review their VAT accounting position considering this case. It may be appropriate to submit disclosures, or protective disclosures, given four-year capping rules if suppliers believe VAT has been overdeclared, and subject to the unjust enrichment rules.
3. Single or multiple supply: Management fee for cattle
The case of Alan and Diane McFarland (Partnership) returns to the previously visited and revisited area of the sometimes fine line between providing zero-rated feed stuffs, exempt land supplies to house animals or whether there is a service provided that amounts to the standard-rated keep of animals.
The supplies in question were provided by the Partnership to Forge Farm Livestock Limited. The Partnership contended originally that there were multiple supplies of zero-rated feed and VAT exempt land. At the hearing, the Partnership advanced an additional argument that the principal supply was that of the zero-rated feed with all other services being ancillary. The VAT involved in this case was £120,828 in relation to VAT accounting periods 11/14 to 08/17 and following a decision made by HMRC on 21 December 2017. The case was heard in January of this year, over 8 years after HMRC’s decision was originally given.
The supply provided by the Partnership was multi-faceted, it included feeding the cattle, storage of feed stuffs, providing machinery and equipment, making up feedstuffs, using machinery, cleaning out old foodstuffs, sending animals to graze, organising veterinary care, cleaning and disinfecting the animal facilities and biometric recording of animals’ identity etc. No exclusive right over land was granted.
The Tribunal concluded that for the supply provided, that there were not separate supplies of land and animal feed or that one of those supplies was the principal and the other ancillary. It was confirmed that under Levob principles that the supply was an indivisible and more complex supply of animal keep with associated services. This was standard rated.
The partnership made arguments that previous interaction with HMRC had formed a legitimate expectation that the approach it had taken was correct. The Tribunal concluded that there “was not established any basis for a legitimate expectation”. The Tribunal stated:
“No clear, unambiguous and unqualified representation was ever made by HMRC that the supplies in issue would be treated as exempt or zero-rated. Indeed, Mr McFarland accepted in evidence that HMRC had never given him any written or oral assurance on the VAT liability of these arrangements, nor had he ever sought a formal ruling.”
Estoppel was also argued. The Tribunal stated:
“We reject the Partnership’s reliance on estoppel by convention. The doctrine requires, at minimum, a clearly shared common assumption between the parties, conduct by HMRC amounting to assent to that assumption, reliance by the Partnership on that shared assumption in subsequent mutual dealings, and resulting detriment. None of these elements is present”.
The appeal was dismissed.
Constable VAT comment: A complex supply which is indivisible, the elements of which form one overall service will commonly follow the VAT liability of that overarching supply not the constituent parts. Single and multiple supply positions are complicated and if there is any ambiguity advice should be sought. An end position can be fundamentally different to expectations or assumptions. Where HMRC has seen a previous VAT treatment or should be aware of this, the bar is set exceptionally high to argue that HMRC’s actions (or inaction) created a legitimate expectation that the VAT liabilities applied are correct. It is similarly difficult to argue that the estoppel principle applies such that an expectation that a taxpayer acted correctly was created by the conventions followed or tacitly allowed by HMRC.
4. Input VAT recovery: Alternative evidence
The appellant in this case before the First-tier Tax Tribunal (FTT), Mochars Limited (Mochars), has an effective date of VAT registration (EDR) of 1 June 2023. It submits monthly VAT returns because it is classified a VAT repayment trader as it receives regular refunds of VAT from HMRC. The business model is one which has become more familiar in recent years, luxury goods such as clothing, shoes and handbags are purchased in the UK (incurring UK VAT) which are then exported to customers located outside the UK, the goods being sent mainly, but not always, to clients in China. These UK businesses seek to reclaim VAT incurred on the purchase of the goods in the UK, the onward supply to a destination outside the UK being zero-rated, generating input VAT refund claims.
Mochars submitted a VAT repayment return in respect of the VAT accounting period ending 31 December 2023 (12/23) requesting a VAT refund of £29,394.80. HMRC instigated a pre-VAT repayment credibility check which saw the VAT refund requested reduced to just £76, hence the appeal.
In this case, the sole shareholder and director of the business usually purchased the goods to be resold and exported, sometimes goods were purchased by friends of Mochars director. When reviewing the 12/23 VAT return HMRC asked for detailed information in support of the VAT refund claim, this request included the 6 highest value purchase invoices which is in line with HMRC’s general initial approach in these circumstances. Despite several requests over a 6-month period, the invoices were not received, although the business forwarded a schedule of 101 supplier invoices demonstrating how the £29,394.80 was comprised.
The schedule of purchase invoices showed that many of the goods were purchased using a credit card and HMRC, not unreasonably, requested copies of credit card statements. None were forthcoming and some of the invoices initially requested by HMRC were not supplied until October 2024. These invoices (77 in number) were all from Harrods and dated September or October 2024 but related to purchases made between September and December 2023 and totalled VAT of just over £23k.
Mochars subsequently provided the remaining 24 invoices (equalling the 101 on the schedule earlier provided to HMRC) with a VAT value of slightly more than £6k, taking us to the £29k input VAT claim. HMRC confirmed that:
- The input VAT claims for most of the invoices included in the claim were to be disallowed because, at the time the input VAT was claimed, Mochars was not in possession of a valid tax invoice in its VAT accounting records.
- Mochars had provided no alternative evidence to support an entitlement to deduct VAT incurred as input VAT.
- If a valid tax invoice could subsequently be produced Mochars could submit a valid input VAT claim.
- By exercising a degree of discretion, which HMRC is allowed to do, HMRC would permit a £76 input VAT claim in relation to VAT incurred on Mochars accountants’ fees. The VAT refund initially claimed was reduced from £29,394.80 to £76.
In December 2025 Mochars submitted an error correction notification (ECN) to HMRC in respect of 77 of the 101 invoices included in the 12/23 input VAT claim. These sums have been refunded to Mochars and the business withdrew that aspect of its appeal at the start of the FTT hearing leaving the recovery of VAT incurred in relation to the remaining 24 transactions as the point at issue.
Mochars director confirmed at the beginning of the hearing (which took place on 16 February 2026) that:
- It did not have any valid tax invoices for any of the transactions included on the 12/23 VAT return until September 2024.
- The remaining 24 invoices in dispute were still not available.
- Bank statements to support the purchase of the goods had still not been provided to HMRC.
The VAT in dispute in relation to the 24 disputed transactions totalled £6,128.78. Mochars argument was that HMRC had failed to consider exercising discretion to allow an input VAT reclaim as required by VAT law. The condition attached to VAT regulation 29(2), does permit HMRC to accept alternate evidence other than valid VAT invoices to support an entitlement to deduct input VAT, and, by failing to do so HMRC did not give Mochars any opportunity to provide any alternative evidence. The FTT was not persuaded and dismissed the appeal, commenting at paragraph 34 of the decision:
Furthermore, given the wording of the pre-decision letter as a whole, we also find that Officer Hussain considered exercising his discretion in relation to the 24 transactions. However, given the complete lack of corroborative evidence that would allow the purchases to be verified (despite being asked for over nearly seven months), it was inevitable that the decision would be to refuse the input tax claims.”
Constable VAT Comment: We are not surprised at HMRC’s approach in relation to this case or the FTT’s decision. HMRC can exercise discretion and accept alternative evidence to support input VAT claims. HMRC guidance manuals confirm that ‘HMRC staff will not simply refuse a claim without giving reasonable consideration to such evidence. HMRC has a duty to ensure that taxpayers pay no more tax than is properly due, nevertheless this obligation must be balanced against a duty to protect the public revenue’. In this case the taxpayer had not produced invoices or copy bank statements or any other evidence to support its entitlement to reclaim VAT incurred in over 2 years following submission of its 12/23 VAT return and the outcome seems almost inevitable. Where suppliers tax invoices are not held, and a business is having difficulty obtaining that documentation, it is important that suitable alternative evidence is obtained and retained to support an entitlement to deduct. If businesses have concerns regarding the quality of evidence held to support input VAT claims, please do not hesitate to contact Constable VAT.
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.