Category Archives: Law

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.

    VAT: Types of legal entities

    By   10 April 2025
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    VAT Basics

    What types of entities can be a ‘taxable person’?

    The definition of a taxable person in the VAT Directive is any person or body “who, independently, carries out in any place any economic activity, whatever the purpose or results”. Economic activity in the UK broadly means any business activity. I consider this definition below. 

    So, what is a person or body?

     In practice, a taxable person or body is generally a business, sole trader or professional. Examples of types of legal entities are a:

    • Sole proprietor
    • Partnership
    • Limited Liability Partnership (LLP)
    • Limited company (limited by shares)
    • Private company (limited by guarantee)
    • Public Limited Company (PLC) – a company registered under the Companies Act (1980)
    • Community Interest Company (CIC)
    • Charitable Incorporated Organisation (CIO)
    • Private unlimited company
    • Club or Association
    • Unincorporated Association
    • Co-operative Society (Co-Op)
    • Community Benefit Society (BenCom)
    • Trust
    • Charity
    • Not For Profit (NPF) entity
    • Right To Manage company (RTM)
    • Financial Mutual
    • Societas Europaea (SE)
    • Co-operative or community benefit society
    • “Section 33” body, eg; Local Authorities, Fire and Rescue Authorities, Police, Lighthouses, the BBC etc – VAT Act 1995 s33. These bodies have different VAT rules, and they may not necessarily be a taxable person

    Each type of entity or structure is subject to separate rules; from; governance, direct tax, reporting, accounting, risks, costs, benefits, responsibilities to legal rights and obligations etc. However, from a VAT perspective, the VAT legislation applies equally to all taxable persons.

    Two or more corporate bodies may apply to register as a single taxable person (VAT group) if they can meet certain conditions.

    A corporate body can apply to register each division separately if it:

    • is organised in divisions
    • carries on its business in divisions
    • can meet certain conditions

    What are not taxable persons?

    Private individuals are not generally involved in business and will therefore not be classed as taxable persons.

    What is business?

    There is considerable case law on what constitutes ‘business’ for VAT purposes. I have written about this issue many times, as it is a fundamental issue in the tax.

    The following articles consider such case law:

    Wakefield College
    Longbridge
    Babylon Farm
    A Shoot
    Y4 Express
    Lajvér Meliorációs Nonprofit Kft. And Lajvér Csapadékvízrendezési Nonprofit Kft
    Healthwatch Hampshire CIC 
    Pertempts Limited
    Northumbria Healthcare

    Registration

    A guide to VAT registration here.

    Weird things that have been taxed…

    By   8 April 2025
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    Things that have been taxed in the past

    Revenue raising knows no bounds. Here are some things which have had their own specific tax. It is interesting to note that some taxation was intended to change behaviour, and some a result of stopping people’s indulgence. A brief view of what and where particular things were taxed:

    Beards – Russia

    Windows – UK

    Body piercings – Arkansas US

    Bricks UK

    Salt – France

    Champagne – Germany

    Hats – UK

    Candles – UK

    Cow flatulence – Denmark

    Playing Cards and dice – UK

    Bagels (but not bread) – New York US

    Fireplaces – UK

    Tattoos – Arkansas US

    Soap – UK

    Illegal Drugs – Tennessee US

    Google – France

    Wig powder – UK

    Unapproved baby names – Sweden

    Not smoking cigarettes – China

    Urine – Ancient Rome

    Tethered hot air balloons – Kansas US

    Cowardice – Knights could opt out fighting in wars by paying a tax called scutage – UK

    Car Accidents – Missouri US

    Political opponents’ land – Oliver Cromwell UK

    Patterned wallpaper (but not plain white) – UK

    Litigation – Tennessee US

    Slave freedom – Ancient Rome

    Modesty – women were not allowed to cover their breasts, and were taxed if they did – India

    Belt buckles – Texas US

    Robots – South Korea

    Men not being married – Missouri US

    Knowledge – UK

    Clocks – UK

    So now you know!

    VAT: Construction Services Reverse Charge – New HMRC Manual

    By   8 April 2025
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    The Construction Reverse Charge (RC) background details here.

    HMRC has recently published its VAT Reverse Charge for Building and Construction Services Manual.

    It includes:

    • how it works
    • which services are covered
    • the supplies of materials
    • the supplies of labour and/or staff
    • who needs to apply it
    • practical issues such as invoicing and adjustments to consideration
    • compliance issues

    The contents of the new manual are:

    VAT: Are hair transplants ‘medical care’? – The Advanced Hair Technology Ltd case

    By   12 March 2025
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    Latest from the courts

    In the Advanced Hair Technology Ltd First-Tier Tribunal (FTT) case the issue was whether hair transplants are exempt supplies of medical care, or were they for ‘cosmetic’ purposes and consequently standard rated?

    Background

    Advanced Hair Technology Ltd (AHT) was a  medical practice trading as The Farjo Hair Institute which specialised in hair restoration surgery. It treated conditions related to hair loss, in particular androgenetic alopecia (AGA). Dr Farjo who carried out the work is qualified is a medical practitioner with the Royal College of Surgeons. The output tax which HMRC deemed due was circa £2,500,000.

    The sole issue was what AHT provided covered by the definition ‘medical care’?

    Legislation

    The VAT Act 1994, Schedule 9, Group 7, item 1 covers services which are for the primary purpose of protecting, restoring, or maintaining health: “medical care”.                                                                 

    Contentions

    AHT argued that it was treating patients for medical conditions, as opposed to providing aesthetic surgery and consequently, its supplies were exempt. The appellant explained that several patients believed that hair loss had affected their self-confidence and so the surgery improved their overall health (which includes a mental health element). Furthermore, the surgery helps to protect the skin from future photodamage, minor trauma and thermal insult.

    HMRC contended that none of the patients had any recorded prior psychiatric conditions, eg; depression or anxiety, nor had any stated that they were looking to benefit from the surgery beyond it improving their appearance and confidence. Additionally,  no recipients of the treatment said that they were seeking any of the above physical protections.

    Therefore, the treatment was a standard rated cosmetic procedure.

    Decision

    The meaning of ‘medical care’ was considered by the Court of Appeal in its decision in Mercy Global [2023] EWCA Civ 1073.

    The court agreed with HMRC that a “principal purpose” test must be applied in all cases.

    The evidence before the FTT was that by the age of 70 at least 80% of caucasian men suffer from hair loss as a result of AGA, and this is part of the normal process of aging. AGA is not considered a medical condition but rather a symptom.

    AHT’s contention that the procedures serve a therapeutic purpose related to psychological issues was dismissed due to a lack of evidence from qualified practitioners. This reinforced the FTT’s view that the treatments were primarily cosmetic, rather than for medical reasons because altering one’s physical appearance was for aesthetic purposes.

    The relevant supplies were therefore outside the exemption.

    The appeal was dismissed.

    Commentary

    The judgment provides some guidance on the interpretation of the definition of medical care for the purposes of the exemption and follows similar recent cases which we covered here:

    Skin Science

    Skin Rich

    X

    The concept of the “provision of medical care” does not include medical interventions carried out for a purpose other than that of diagnosing, treating and in so far as possible, curing diseases or health disorders and it is the purpose of the medical intervention rather than merely the qualifications of the person providing it that is key in determining the VAT liability.

    There has been an ongoing debate as to what constitutes medical care. Over 20 years ago I was advising a large London clinic on this very point and much turned on whether patients’ mental health was improved by undergoing what many would regard as cosmetic procedures. We were somewhat handicapped in our arguments by the fact that many of the patients were lap dancers undergoing breast augmentation on the direction of the owner of a certain club…

    It is worth remembering that not all services provided by a medically registered practitioner are exempt. The question of whether the medical care exemption is engaged in any given case will turn on the particular facts .

    Interestingly, the judge here stated that the medical exemption may apply to some patients whose hair loss was a result of trauma caused by cancer treatment.

    VAT Domestic Reverse Charge procedure Notice updated

    By   4 March 2025
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    The Notice sets out how the Domestic Reverse Charge (DRC) makes supplies of standard or reduced rated construction services between construction or building businesses subject to the charge. This means that the recipient of the supply will be liable to account for VAT due, instead of the supplier. Consequently, the customer in the construction industry receiving the supply of construction services will be required to pay the VAT directly to HMRC rather than paying it to the supplier. It will be able to reclaim this VAT subject to the normal VAT rules. The DRC will apply throughout the supply chain up to the point where the customer receiving the supply is no longer a business that makes supplies of construction services (a so-called end user).

     

    The supplies to which the DRC applies are set out here

    The update includes information on recipients of DRC supplies that are not VAT registered. Broadly; if a business buys specified goods or services, it may make it liable to VAT registered on the strength of the value of the DRC. 

    A VAT Did you know?

    By   26 February 2025
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    Under one VAT scheme, zero-rated and exempt supplies are subject to VAT – as are those which are “Outside the scope of UK VAT”.

    Which, or course, makes entire sense.

    VAT: When is a bar a bar? – The Anglia Ruskin Students’ Union case

    By   17 February 2025
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    Latest from the courts

    A student union tried to argue that a bar is not a bar. It did not go well.

    In the case of The Anglia Ruskin Students’ Union the High Court considered the appellant’s application for judicial review of HMRC’s decision that “92” which was operated on the university’s campus was a bar.

    The importance of this description of the venue was that if it was indeed a bar, the supplies from it would be standard rated. This is because the supplies of catering to students by eligible bodies, including universities”, are exempt from VAT, on the basis that the supplies are closely related to exempt supplies of education, however, the exemption does not cover food and drink sold in bars.

    The union contended that ‘bar’ means a place that does not supply catering, or, alternatively, predominantly or mainly serves alcohol.

    HMRC, predictably argued that a bar is “somewhere where one can buy and drink alcoholic and other drinks, as well as food”, and that 92 met that definition.

    The court agreed with HMRC that the bar was indeed a bar and did not grant permission to appeal.

    So, now we know, a bar is a bar, not a café… or anything else really.

    Technical

    * Student unions often provide catering alongside universities. Since March 2002, HMRC has operated a published concession extending the exemption granted to supplies of catering made by universities to student unions.