Lugworms and maggots are standard rated, unless they are also suitable for human consumption, in which case they may be zero-rated – Yum.
Monthly Archives: June 2025
VAT: New guidance – Online Marketplace supplies
HMRC issued new guidance for businesses which sell goods using an online marketplace on 20 June 2025. It enables online marketplace (an e-commerce site that connects sellers with buyers where transactions are managed by the website owner) operators to check if a seller is established outside the UK, so that it can establish which party is liable for VAT on sales.
Background
An online marketplace operator is liable for VAT on goods of any value that are both:
- located in the UK at the point of sale
- sold by an overseas business through the operator’s online marketplace
The operator needs to establish who is liable for VAT on sales of goods which are facilitated. To confirm this, the operator needs to take all reasonable steps to check whether a seller is established outside the UK. A business is required to keep evidence to show that it has taken all reasonable steps.
This new guidance includes details about how to check where an online marketplace seller is established and provides information about checks and process businesses can put in place. HMRC will review this evidence and will consider all evidence which has been used to establish where the seller is established. In each case, it will consider:
- what steps were performed, including any that are designed to address the risks of a particular case
- to what extent steps were appropriate, adequate and timely in relation to addressing the risks identified
- what the results of the checks indicate
- whether a business took appropriate action in response to the results
Examples of checks
HMRC give the following examples of types of checks which might be undertaken to determine if an online seller is UK-established:
- check for a UK principal place of business
- check that the VAT registration available for the seller matches their legal name and details on HMRC’s Check a UK VAT number tool
- check that the seller is registered at Companies House with a UK address
- establish whether directors reside in the UK, eg; as shown on the Companies House register
- check that payment or financial information shows a UK presence. This can include:
- UK bank or credit card details
- UK merchant address attached to the seller bank account
- other financial data provided by independent payment service providers
- check other commercially relevant information such as credit checks and other background checks from third party sources
- check that the device used by the seller has a UK IP address, or check another method of geolocation
- establish whether the seller uses a phone number with a UK country code
Overview of online sellers
More general guidance from HMRC on online sellers:
- charging VAT when using an online marketplace to sell goods to customers in the UK
- charging VAT when goods are sold if you’re an online marketplace operator
- charging VAT on goods sold direct to customers in the UK
The rules aim to avoid VAT evasion by non-UK online sellers.
VAT: Treatment of vouchers, gifts and discounts – How business promotions work
I hope that the VAT position is helpfully summarised here. I thought it may be useful if the VAT treatment of various business promotion schemes is set out in one place.
I recall a statement from an old mentor of mine; “if you have a marketing department you have a VAT issue!”
Summary
| Offer | How to charge VAT |
| Discounts | Charged on the discounted price (not the full price) |
| Gifts | Charged on the gift’s full value – there are some exceptions listed below |
| Multi-buys | Charged on the combined price if all the items have the same VAT rate. If not, VAT is ‘apportioned’ as mixed-rate goods |
| Money-off coupons, vouchers etc | No VAT due if given away free at time of a purchase. If not, VAT due on the price charged |
| Face value vouchers that can be used for more than one type of good or service (multi-purpose) | No VAT due, if sold at or below their monetary value |
| Face value vouchers that can only be used for one type of good or service (single-purpose) | VAT due on the value of the voucher when issued |
| Redeemed face value vouchers | Charged on the full value of the transaction at the appropriate rate of the goods provided in return for the voucher |
Exceptions for gifts
There’s no VAT due on gifts given to the same person if their total value in a 12 month period is less than £50.
Free goods and services
A business is not required to account for VAT on things like free samples if they meet certain conditions.
| Supplies | Condition to meet so no VAT due |
| Free samples | Used for marketing purposes and provided in a quantity that lets potential customers test the product |
| Free loans of business assets | The cost of hiring the asset is included in something else you sell to the customer |
| Free gifts | The total cost of all gifts to the same person is less than £50 in a 12 month period |
| Free services | You don’t get any payment or goods or services in return |
Background
Face value vouchers
Quite recent changes, radically alter the UK rules for face value vouchers (FVV). FVVs are; vouchers, tokens, stamps (physical or electronic) which entitle the holder to certain goods or services up to the value on the face of the vouchers from the supplier of those goods or services.
Examples of FVVs would include vouchers sold by popular group discount websites, vouchers sold by high street retailers, book tokens, stamps and various high street vouchers.
Single or multi-purpose
The most important distinction for FFVs is whether a voucher is a single purpose voucher or multi-purpose voucher. If it is a multi-purpose voucher then little has changed. If it is a single purpose voucher, however, HMRC will now required output tax to be accounted for at the date it is issued.
Single purpose vouchers are vouchers which carry the right to receive only one type of goods or services which are all subject to a single rate of VAT. Multi-purpose vouchers are anything else. The differences can be quite subtle.
For example:
- a voucher which entitles you to download an e-book from one seller will be a single purpose voucher. A voucher which entitles you to either books (zero rated) or an e-book download (standard rated) from the same seller will be multi-purpose
- a voucher which entitles you to £10 of food at a restaurant which does not sell takeaways is probably single purpose, whereas if the restaurant has a cold salad bar and you can buy a take away with the voucher (or hot food) then it would be multi-purpose.
The above means that for single purpose vouchers VAT is due whether the voucher is actually redeemed or not; which seems an unfair result. There is no way to reduce output tax previously accounted for if the voucher is not used.
Please contact us if you, or your clients use this type of business promotion. of course, get it wrong, and there is likely to be a financial penalty…
VAT: Updated Notice – Local authorities and similar bodies
Notice 749 has been updated. This is guidance for Local authorities, government departments, non-departmental public bodies, NHS bodies, local government bodies, the police and the fire and rescue services.
It sets out:
- which activities of local authorities and similar bodies are business or non-business for VAT purposes
- the VAT registration requirements for local authorities
- when local authorities and certain similar bodies can reclaim VAT incurred on costs that relate to their non-business activities
The changes amend:
- Section ‘7.2 Insignificant proportion’ has been updated to remove a reference to VAT attributed and apportioned to exempt supplies.
- Section ‘7.5 What to do if you want to opt for a special section 33 VAT recovery method to recover the VAT incurred’ the deadline for using a special section 33 recovery method has been changed from 31 October to 30 September following the end of the financial year.
Section 33 bodies
“Section 33 bodies” per The VAT Act 1994, section 33)
These entities have special VAT treatment which is effectively the opposite of normal VAT rules. To avoid a cost to the taxpayer, these entities are permitted to specifically recover input tax that relates to non-business activities. Nobody said that VAT was straightforward and in these cases, the VAT rules are inverted!
We act for many Local Authorities and Academies. Please contact us should you, or your clients, have any queries on this matter.
VAT: Payments on account – updated guidance
HMRC updated its payments on account (POA) guidance in May 2025, The update includes information to support when a business should send a VAT return.
What are POA?
These are advance payments towards a business’s VAT bill. They are mandatory.
HMRC will notify a taxpayer to make POA if a business renders VAT returns quarterly, and it owes more than £2.3 million in any period of 12 months or less.
Under the POA arrangement, businesses make interim payments at the end of months two and three for each return quarter. The interim payment is intended to cover part of the overall VAT liability for the that quarter. The balancing payment for the return’s VAT liability will be settled when the business submits its VAT return payment. Quarterly VAT returns are filed online as normal.
POA calculation
HMRC will calculate POA based on a business’s annual VAT liability in the period that it goes over the threshold. The annual VAT liability in that period will be divided by 24 to arrive at an instalment amount.
A taxable person who has been in business for less than 12 months will have POA calculated by HMRC on a pro rata basis.
POA start date and annual cycle
The payments on account cycle starts in the first quarter after a business exceeds the £2.3 million threshold.
The payments will remain the same until the start of the next annual cycle.
The annual cycle begins in April, May or June depending on which VAT return ‘stagger’ a business is on. HMRC bases the amount of payments during the annual cycle on the liability in the period known as the ‘reference year’.
POA due dates
The due dates for POA are the last working day of the second and third months of every VAT quarter no matter what the period end date is. The seven-day extension for paying electronically does not apply to POA.
POA that are not paid on time will be subject to late payment interest.
Due dates for quarterly balancing payments
Balancing payments are due with the VAT return and must clear HMRC’s bank account by the last working day of the month if standard period end dates are used.
Late payments
If a business does not make POA or the balancing payment in full and on time HMRC will:
- take immediate action to recover the debt
- charge late payment interest
- consider charging late payment penalties on amounts unpaid after the balancing payment due date
- consider transferring a business from quarterly to monthly returns
Removal from a POA arrangement
If a business’s VAT liability falls below £2.3 million in the reference year HMRC will remove it from the arrangement six months later.
Alternative to payments on account
If making POA and submitting quarterly VAT returns does not suit a business, it can choose to make VAT returns and payments monthly.
Commentary
As may be seen, it is important to recognise the POA limit and to make payments on time. There is an obvious cash flow impact and plans should be put in place if the VAT turnover is nearing the threshold.
VAT: Are poppadoms crisps? The Walkers Snack Foods case
Latest from the courts
In the Walkers Snack Foods Ltd Upper Tribunal (UT) case the issue was whether Sensations Poppadoms are similar to potato crisps and consequently excluded from the zero rating for food.
The First-Tier Tribunal (FTT) found that the product was similar to crisps and that it was to be treated as being excepted items from zero-rating and was therefore standard rated.
Background
The salient matter was whether the poppadoms were “made from the potato, or from potato flour, or from potato starch” and were “similar” to potato crisps via The VAT Act 1994, Schedule 8, Group 1, item 1, excepted item 5.
Value Added Tax – excepted item 5 to item 1, Group 1, Part II, Schedule 8 Value Added Tax Act 1994 – whether First-tier Tribunal erred in law in finding Sensations Poppadoms were “made from the potato, or from potato flour, or from potato starch” and were “similar” to potato crisps
This sets out that the following is excepted from the zero rate for “Food of a kind used for human consumption”.
“5. Any of the following when packaged for human consumption without further preparation, namely, potato crisps, potato sticks, potato puffs, and similar products made from the potato, or from potato flour, or from potato starch, and savoury food products obtained by the swelling of cereals or cereal products; and salted or roasted nuts other than nuts in shell.”
Contentions
The appellant argued that the poppadoms should be zero-rated for VAT purposes because they fall within Item 1 of Group 1 as they are food, and that they are not included in the list of exceptions.
HMRC contended that that the product fell within excepted item 5 of Group 1, because they are products similar to potato crisps…
Decision
- The UT agreed with the FTT that the words “made from the potato” can extend to products made from potato granules and was neither untenable nor a plain misapplication of the law to the facts.
- The UT recalled that the FTT had concluded that Sensations Poppadoms contained “more than enough potato content” for it to be reasonable to conclude that they were “made from the potato… or from potato starch”. Sensations Poppadoms have a combined potato content (potato granules and potato starch) of 39%-40%, so the potato content is significant. The question for the UT was whether the FTT reached a conclusion which no reasonable tribunal properly construing the statute could have reached. The UT answered “no”.
- The UT noted that the FTT determined that Sensations Poppadoms were similar to potato crisps based on a multifactorial assessment of various factors, including; packaging, appearance, texture and taste. The FTT noted that while the manufacturing processes differ, the statute allows for similarity among products made from potato starch and flour. The FTT found that the potato content in Sensations Poppadoms contributed to a neutral flavour, which did not significantly distinguish them from potato crisps. Broadly, the UT agreed with this determination.
Consequently, for the above reasons the UT dismissed the appeal and the product is subject to the standard rate.
Commentary
Yet another case on the liability of ‘snack foods’. So now we know that: Doritos, Monster Munch, Wotsits and Poppadums are standard rated, however Pringles, Skips and Twiglets are VAT free. This demonstrates the complexity of classifying food and these decisions throw up more complications for producers as this market develops quickly as the public’s taste moves on.
VAT: New guidance on exception from registration
HMRC has published new guidance which sets out how to apply for VAT registration exception if a business has temporarily exceeded the VAT registration threshold of £90,000 in any 12-month period (a rolling calculation).
What is registration exception?
If a business has a one-off increase in income it can apply for a registration exception. If its taxable turnover goes over the threshold temporarily it can write to HMRC with evidence showing why the taxable turnover will not exceed the deregistration threshold (currently £88,000 in the next 12 months). HMRC will consider an exception and write confirming if a business will receive one. If not, HMRC will compulsorily register the business for VAT. A business will need to formally apply to HMRC to make this exception official.
The guidance explains:
- when to apply
- how to apply
- what happens after the application
Forms
A business will need to complete forms VAT1 and VAT5EXC in order to apply for registration exception. HMRC will write to the applicant within 40 working days of receipt with a decision.
If HMRC approves the application for exception
HMRC will not register the business for VAT. However, this is a ‘one-off’ and does not mean that the business will never have to register.
The value of taxable supplies must be checked every month, to establish whether they have exceeded the registration threshold. If they have, the business must:
- register for VAT
- apply for exception again
If HMRC refuses the application for exception
The response letter will explain why, and the information provided on the form VAT 1 will be used to VAT register the business. The applicant will need to account for VAT from the date it was liable.