Category Archives: Disputes

VAT: Taxpayers’ trust in HMRC is falling

By   6 August 2025
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Recently published HM Treasury Minutes show that taxpayers’ trust in HMRC is falling. The Public Accounts Committee (PAC) recommended that HMRC should work with taxpayers and their representatives to understand why trust in HMRC is falling and what it can do to quickly address the decline. Furthermore, the PAC recommended that HMRC should publish the concerns it has heard and the actions it is taking to address these, as a first step to improving trust.

HMRC agreed and the recommendation has been implemented. So, what is the plan?

The Plan

HMRC says it recognises five drivers of customer trust, being perceptions of:

  • fairness
  • competence
  • transparency
  • reciprocity
  • prevalent social norms

HMRC uses its annual customer surveys (most recently 2024), complaints data, and focus groups to understand these perceptions in driving changes in the headline measures for different customer groups. HMRC say it places ‘great value’ on customer feedback.

Alongside good customer service, trust depends on ensuring a fair tax ecosystem by holding to account those that do not pay the correct amount of tax, in addition to other factors such as prevailing trust in government.

The aim is to continue improving levels of trust by being more supportive, creating a level playing field, and ensuring its services and processes are quicker, easier and help more customers to get their taxes right first time.

For example:

  • delivering sustained improvements in HMRC’s helpline services
  • improving digital services
  • updating guidance regarding tax avoidance schemes
  • consulting on ways to improve intermediary standards and the benefits good advisers bring to the tax system, counter those that promote avoidance
  • reforming the tax administration framework
  • making improvements to services for tax advisers, such as improving the Agents Dedicated Line and Services Account, building digital transactional services and web-chat for tax advisers, and introducing a pre-complaint resolution service

HMRC publishes the results of its annual surveys as well as a range of other customer feedback eg; via exercises like public consultation. The Exchequer Secretary has confirmed that HMRC will publish a Transformation Roadmap this summer, including the details of digital services that will mean a better experience for taxpayers.

We await signs that HMRC’s services are improving and whether that lost trust can be returned. We have significant doubts, but remain open minded. 

VAT: The United Carpets case – single of multiple supplies?

By   5 August 2025
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Latest from the courts

Yet more on composite or separate supplies. As a background to the issue please see previous relevant cases here here here and here. This is the latest the seemingly endless and conflicting series of cases on whether certain supplies are multiple or single. 

In the First-Tier Tribunal case (FTT) of United Carpets (Franchisor) Limited (UC) the issue was whether the appellant made a single supply of flooring and fitting or whether there were two separate supplies

Background

UC is a retailer of flooring (including carpets, underlay, vinyl and wood flooring), as well as beds. A customer who purchased flooring from the appellant was given the option to have an independent, self-employed, fitter to carry out the fitting of the purchased flooring. Each store has a pool of fitters who take on fitting work referred to them by the appellant. If the customer chooses, the fitter will attend the customer’s home to fit the flooring, as directed by the customer. The fitter is then paid by the customer for that work, with the money being received and retained, in full, by the fitter.

The fitters are self-employed and they use their own tools, and drive their own vehicles. They also have their own public liability insurance and are not covered by any of the appellant’s insurance policies. They are not paid by the UC and are not on the UC’s payroll. Since they are self-employed, the fitters have no ongoing obligations to the appellant (or vice versa) and can take on referrals as they please. The appellant does not hold any formal records for the fitters and is not aware of how much the fitters earn by way of the referrals. The rates charged by the fitters are determined by the fitters themselves.

The appellant’s Terms and Conditions of Sale included the following statements:

“The carpet fitting and delivery services provided by the Installer are supplied under a separate contract from the supply of goods to the Customer by the Company (UC). The Company is not responsible for the delivery or fitting of the Goods to the Customer.

“Full payment for the fitting services is due upon fitting payable by cash or cheque directly to the Installer. As detailed on the invoice, payment for the carpet fitting is made directly to the Installer under a separate contractual agreement between the Customer and the Installer…”

The issue

Whether the supplies of fitting services made to customers following the referral to the fitter by UC were supplies made by the self-employed carpet fitters who performed the services, or by UC as a single supply of flooring and fitting such that output tax was due from UC on both the retail sales and the fitting fees.

Contentions

HMRC determined that the appellant had incorrectly treated the supply of carpet fitting and contended that it supplied fitting services via sub-contractors and assessed the appellant for output tax on the fitting fees. HMRC further contend that the appellant made those supplies as part of a single supply, comprising both the flooring and the fitting services. Assessments were raised to recover the deemed underdeclared output tax.

UC’s position is that the self-employed fitters were completely independent, and that the fitting services do not form a single supply. Consequently, VAT was only due on the retail sales and not the fitting income.

Decision

The FTT concluded that there were two separate supplies:

  • the supply of goods by UC to the customer, and
  • the supply of services by the fitter to the customer.

After a review of the contractual documentation and the economic and commercial reality, the court was satisfied that there were three agreements:

  • between UC and the customer
  • between UC and the fitter
  • between the fitter and the customer

The fitter provided services to the end consumer who was liable to pay the fitter.

Consequently, the appeal was allowed, and the assessments were set aside.

A significant amount of case law was cited (a list too long to reproduce here) but included were the cases of: Secret Hotels 2 Limited v HMRC; All Answers Ltd v HMRC and Tolsma v Inspecteur der Omzetbelasting Leeuwarden which were considered and applied.

Commentary

Yet another case on the perennial composite/single supply issue. This case was more straightforward than many on this subject and the outcome was no surprise. It is essential that businesses that potentially deal with agent/principal matters or make supplies at different VAT rates consider their position. Both contracts, other documentation and the commercial reality need to be considered. We recommend that in such circumstances a review is carried out specifically to establish the proper VAT position .

VAT: Input tax incurred on the management of pension funds

By   1 July 2025
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HMRC has published Revenue and Customs Brief 4 (2025), which provides information about changes to VAT deduction on costs incurred in respect of the management of pension funds.

The Brief explains a further policy change to VAT deduction on the management of pension funds – Employers can now claim all the VAT on investment costs linked to pension funds. HMRC will no longer view investment costs as being subject to dual-use. Instead, all the associated input tax incurred will be seen as the employer’s and deductible by the employer, subject to normal deduction rule

They no longer need to split the costs with pension trustees. This was (prior to the introduction of the changes on 18 June 2025) a dual-use apportionment.

This Brief is relevant to:

  • businesses and other taxable entities that provide pension funds for their employees
  • pension administration and asset management service providers
  • pension fund trustees and pension providers
  • tax advisers

Impact on partial exemption methods

Businesses may need to propose new partial exemption special method (PESM) to align their VAT recovery with the new policy.

Background

HMRC’s historic policy was that employers could recover input tax they incurred on costs relating to the administration of their occupational pension funds, but not those in relation to the asset management of investments made by the fund.

Subsequently, HMRC changed its policy to allow employers recovery of input tax incurred on investment costs, provided that the employer could show evidence that they contracted and paid for the investment services.

HMRC has said that it will publish additional guidance on the new policy by Autumn 2025.

Commentary

This is very welcome news for managers of pension funds. It provides clarity and simplification in accounting, plus, more significantly; a much-improved VAT position whereby irrecoverable input tax can be avoided.

The HMRC climbdown is originally a result of the Fiscale Eenheid PPG Holdings BV cs te Hoogezand (C-26/12) CJEU case which considered an employer’s entitlement to deduct VAT paid on services relating to the administration of defined benefit pension funds and the management of the assets of the fund..

VAT: New guidance – Online Marketplace supplies

By   24 June 2025
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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:

The rules aim to avoid VAT evasion by non-UK online sellers.

VAT: Treatment of vouchers, gifts and discounts – How business promotions work

By   18 June 2025
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Business promotions are an area of VAT which continues to prove complex.  This is further exacerbated by changes to the legislation at EU and domestic level and ongoing case law. The main points are; whether there is a supply, and, if so, what is the value of that supply?

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: Are poppadoms crisps? The Walkers Snack Foods case

By   4 June 2025
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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: Whether an online tool an ‘examination service’? The Generic Maths case.

By   12 May 2025
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Latest from the courts.

In the Generic Maths Limited First Tier Tribunal case the issue was whether the appellant’s product; ‘ConquerMaths’ amounted to examination services so to be exempt via The VATA 1994, Schedule 9, Group 6, Item 3.

Background

Generic Maths provided an online tool which was intended to be of benefit to students or their parents/teachers. The following facts concerning ConquerMaths were found:

  • it does not lead to any qualifications
  • users can drop in and out of the offering (unlike the way they might have to proceed if following a course leading to a qualification)
  • it includes many hundreds of available diagnostic tests that test students’ knowledge of the principles that will be taught on the various subjects
  • several short tutoring videos are included, although the number of videos is small in comparison to the number of diagnostic tests
  • the average user spends 75 minutes on diagnostic tests compared to five minutes on videos
  • the appellant’s witnesses described the product as diagnostic assessments, formative assessments, and summative assessments
  • in addition to the diagnostic tests, the product includes worksheets in an exam format. Pupils are encouraged to complete these offline and then feed the results into the system

The issue

Simply put; was the product predominantly a tool that provides assessments enabling those using the product to determine what level of maths ability the student has reached and identify any gaps in knowledge and therefore an exempt supply since it falls into the category “examination services”? Or, as HMRC contended, was it an online mathematical tutorial tool which was standard rated as it was a composite supply the predominant element of which was education and that the supply was not one of examination services? (There was no argument that these were exempt educational services).

The tests

The FTT considered that the correct test for determining the nature of the appellant’s supplies was an objective test, based on how they would be characterised by the typical consumer. On that basis, ConquerMaths was a teaching product designed to improve maths understanding, not an examination service.

Additionally, if the correct test was rather a functional test, the result would be the similar.

Decision

The Tribunal did not consider that the product was a supply of examination services within Item 3. It found that the assessment had been made using best judgment by HMRC and accordingly that the appeal should be dismissed.

Commentary

This is probably the correct decision, although the examination and education exemptions are open to interpretation. Care should be taken by taxpayers that the exemption is correctly applied. Although the definition of examination services is wider than formal public examinations, it was not wide enough to encompass ConquerMaths.

VAT: HMRC updates tax avoidance schemes guidance – Stop Notices

By   8 May 2025
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HMRC has updated its guidance on promoters of tax avoidance schemes (guidance on Part 5 and Schedules 34 to 36 of the Finance Act 2014).

The guidance explains the rules that apply to promoters of tax avoidance schemes. These rules aim to deter the development and use of avoidance schemes by influencing the behaviour of promoters, their intermediaries, and clients.

Stop Notices

These Notices are covered by The Finance Act 2021, Schedule 30, part 1, section 236A

  1. An authorised officer may give a person a Notice (a “Stop Notice”) if the authorised officer suspects that the recipient promotes, or has promoted, arrangements of a description specified in the notice or proposals for such arrangements.

 HMRC issues Stop Notices to promotors of tax avoidance schemes, requiring them to stop selling or promoting the scheme.

The main aim of issuing these Notices is to reduce the number of tax avoidance schemes that are being marketed. This makes it more difficult for taxpayers to get involved in them.

When HMRC issues a stop notice to a promoter, it means:

  • the promoter who receives the notice must stop selling the specified scheme
  • the promoter who receives the notice must also pass a copy of it to certain associated persons, who are also subject to the stop notice and must also stop selling the specified scheme
  • all those persons subject to the notice must inform HMRC of all the people they have promoted the scheme to and any they continue to promote it to
  • the persons subject to the stop notice must inform all clients and intermediaries that they are subject to a stop notice, what this means, and provide them with a copy of the stop notice

If a promoter fails to comply with a stop notice they can face penalties of up to £100,000 which can increase to £1million.

Our approach to planning and HMRC

Marcus Ward Consultancy Ltd does not market, advise on, or advocate aggressive schemes. The company provides bespoke solutions to an individual business and does not believe in “one size fits all” mass-marketed schemes.  We will always work within the law and the spirit of the law.  We operate a full disclosure policy and may refuse to work with you if you do not subscribe to this attitude.  We will, on occasion, cross swords with HMRC if we believe we are correct and that HMRC is being unreasonable and we will fight to uphold our clients’ rights against any unfair accusations.

A VAT Did you know?

By   28 April 2025
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Grass seed is zero-rated, but turf is standard rated.

VAT: Tribunal costs

By   23 April 2025
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    Latest from the courts

    In the First Tier Tribunal (FTT) case of Eurolaser IT Ltd regarding Kittel and Mecsek assessments and penalties:

    • whether an agent knew or should have known of fraud in supply chain – yes
    • whether such knowledge/means of knowledge to be attributed to Appellant – yes
    • whether Mecsek requires HMRC to show reasonable steps not taken by Appellant – yes
    • whether reasonable steps taken – no
    • unsurprisingly, the appeal was refused

    one interesting aspect was the award of costs.

    Generally, in FTT cases the rule is that each party will usually bear its own costs.

    However, it is worth recapping how the award of costs works via The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. In this instant case, the Appellant had not ‘opted out’ of the costs protection regime set out in rule 10(c)(ii) of the Rules. Consequently, the FTT ordered that Eurolaser must pay HMRC’s costs – a sting in the tail. So, what are the rules? (Where relevant here)

    Orders for costs

    “10.—(1) The Tribunal may only make an order in respect of costs (or, in Scotland, expenses)—

    (a) under section 29(4) of the 2007 Act (wasted costs) [and costs incurred in applying for such costs];

    (b) if the Tribunal considers that a party or their representative has acted unreasonably in bringing, defending or conducting the proceedings; 

    (c) if—

    (i) the proceedings have been allocated as a Complex case under rule 23 (allocation of cases to categories); and

    (ii) the taxpayer (or, where more than one party is a taxpayer, one of them) has not sent or delivered a written request to the Tribunal, within 28 days of receiving notice that the case had been allocated as a Complex case, that the proceedings be excluded from potential liability for costs or expenses under this sub-paragraph”

    So, in “Complex” cases, an Appellant must submit a request that the case is excluded from the potential liability of costs being awarded, and HMRC must request repayment of its costs incurred in defending the case.

    What are Complex cases?

    These are complicated cases which:

    • require lengthy or complex evidence
    • require a lengthy hearing
    • involve complex or important principles or issues
    • involve large amounts or tax or penalties

    such cases are allocated to a ‘track’ within the FTT system.

    Other cost awards

    It is also worth remembering that costs can be awarded if the appeal is brought unreasonably. This usually means that it is vexatious or frivolous, so proper advice should be sought when considering an appeal.