Category Archives: Law

VAT: Repayment interest/commercial restitution

By Marcus Ward 28 October 2025

Repayment interest and commercial restitution for VAT Autumn Budget 2025 representation by the Chartered Institute of Taxation.

This joint representation by the CIOT and the ATT covers the blatant unfairness of the amount of interest HMRC charges taxpayers when a business pays VAT late and the amount that HMRC pays a taxpayer when there are delays in making repayments to a business when they are due. Unsurprisingly, taxpayers have to pay a higher rate of interest; for reasons unknown!

Details here.

VAT: Late claims for input tax

By Marcus Ward 21 October 2025

HMRC has recently updated its internal guidance: VIT33000 – How to treat input tax: late claims for input tax.

Input tax claims should be made in the accounting period in which the tax on the relevant goods or services became chargeable (the time of supply, or ‘tax point’). This is referred to as the ‘proper period’.

There are times when a claim cannot be made in the proper period. For example, the supporting evidence may not have been received. However, there are other reasons for claiming input tax in later periods, such as:

Businesses carrying out due diligence to get their tax affair right – examining invoices which may include deductible and non-deductible costs.
Internal accounting procedures and governance – Business may have a cut-off date for processing invoices, eg: 20th of the last month in the tax period. Invoices received from 21st would not be processed and therefore submitted in a later period.

Recovery of input tax outside the proper period is subject to the Commissioners’ discretion under The VAT Regulations 1995, Regulation 29. HMRC will allow late claims to input tax in the above circumstances and in specific cases, provided HMRC is satisfied that allowing the late claims in a later period does not lead to overclaiming input tax or less tax being payable than if the input tax was claimed in the ‘proper period’.

HMRC will not exercise discretion to allow late claims of input tax on VAT returns in a later period where there is evidence of careless error or repeated late claims.

If tax is not deducted in the proper period due to an error, a business can recover the tax in a later period via The VAT Regulations 1995, Regulation 35 . More information on this subject and recent updates to the procedures here .

VAT: Can Nitrous Oxide be zero-rated food? The Telamara case – no laughing matter

By Marcus Ward 1 October 2025

Latest from the courts

In the First-Tier tribunal (FTT) case of Telamara Limited the issue was whether Nitrous Oxide (N₂O) used exclusively for culinary use can be zero-rated.

Background

The appellant supplied N₂O canisters which were used as cream chargers. These were used for whipping cream and creating foams and mousses, and to infuse liquids. The relevant invoices described the product as; “Dairy products misc. Cream/beverage infusers 600 x 8g cylinder”. The chargers were not for medical use. The chargers were certified as Halal products.

Telamara’s customers were wholesalers and the units in which the chargers were sold were in boxes of 600. The packaging states that the contents of the chargers should not be inhaled. If consumed on its own N₂O is tasteless and all but imperceptible and its only effect is on the consistency of the whipped food.

The contentions

Telamara considered that the sale of the canisters should be zero-rated because they were for culinary use as food of a kind for human consumption via The VAT Act 1994, Schedule 8 VAT Act 1994, Group 1, Item 1. It was accepted that the N₂O would not be “eaten on its own” but it nevertheless was said to form an ingredient of all of the food substances into which it was incorporated by infusion or by use of the cream whipper, changing the state and nature of those foods. Furthermore, the appellant claimed unfairness because HMRC had been unable to provide clear guidance on the correct VAT treatment when the business started but HMRC subsequently became certain the supplies were standard rated.

Unsurprisingly, HMRC disagreed, formed a view that the supplies were not of food, and raised an assessment for the output tax it deemed to be due on the standard rated supplies.

Decision

The appeal was dismissed. It was found that the chargers were not food because N₂O:

had no nutritional value
is a food additive, not food
does not add to the calories of food
is odourless, colourless, and tasteless
is a gas and therefore incapable of being either eaten or drunk

The Tribunal concluded that the gases were standard rated as they were not food of a kind used for human consumption. It concluded that no informed and broad-minded person considering whether the gases were food would conclude that they were.

Commentary

Yet another “Is it food?” case adding to a long list. The Tribunal helpfully set out (drawing from an extensive and thorough review of the very many cases which have considered the scope of zero-rating of food) the required exercise considering and weighing up the following factors to answer the question of whether something is food:

(1) Nutritional value

(2) Palatability

(3) Form of the product

(4) Manner of/directions for consumption

(5) Frequency of consumption

(6) Marketing

(7) Purpose of the product

(8) Range of uses

(9) Constituent ingredients

(10) Dictionary definition of food

Summary

Is it food? is not as a straightforward question as it may seem!

We recommend that any business which is involved in ‘food” or “food-like” products should undertake a review in light of this case. We can, of course, help with this .

I have to charge myself VAT?!

By Marcus Ward 22 September 2025

VAT Basics

I have to charge myself VAT? How comes?!

Well, normally, the supplier is the person who must account to the tax authorities for any VAT due on the supply. However, in certain situations, the position is reversed and it is the customer who must account for any VAT due. Don’t get caught out!

Here are just some of the situations when you have to charge yourself VAT:

Purchasing services from abroad

These will be obtained free of VAT from an overseas supplier. What is known as the ‘reverse charge’ procedure must be applied. Where the reverse charge procedure applies, the recipient of the services must act as both the supplier and the recipient of the services. On the same VAT return, the recipient must account for output tax, calculated on the full value of the supply received, and (subject to partial exemption and non-business rules) include the VAT charged as input tax. The effect of the provisions is that the reverse charge has no net cost to the recipient if he can attribute the input tax to taxable supplies and can therefore reclaim it in full. If he cannot, the effect is to put him in the same position as if had received the supply from a UK supplier rather than from one outside the UK. Thus creating a level playing field between purchasing from the UK and overseas.

Accounting for VAT and recovery of input tax.

Where the reverse charge procedure applies, the recipient of the services must act as both the supplier and the recipient of the services. On the same VAT return, the recipient must

account for output tax, calculated on the full value of the supply received, in Box 1;
(subject to partial exemption and non-business rules) include the VAT stated in box 1 as input tax in Box 4; and;
include the full value of the supply in both Boxes 6 and 7.

Value of supply: The value of the deemed supply is to be taken to be the consideration in money for which the services were in fact supplied or, where the consideration did not consist or not wholly consist of money, such amount in money as is equivalent to that consideration. The consideration payable to the overseas supplier for the services excludes UK VAT but includes any taxes levied abroad.

Time of supply: The time of supply of such services is the date the supplies are paid for or, if the consideration is not in money, the last day of the VAT period in which the services are performed.

Deregistration

Any goods on hand at deregistration with a total value of over £1,000 on which input tax has been claimed are subject to a self supply. This is a similar mechanism to a reverse charge in that the goods are deemed to be supplied to the business by the business and output tax is due. However, in these circumstances it is not possible to recover any input tax on the self supply.

Flat Rate Scheme

There is a self supply of capital items on which input tax has been claimed when a business leaves the flat rate scheme (and remains VAT registered).

Domestic Reverse Charge (DRC)

The DRC makes supplies of standard or reduced rated construction services between construction or building businesses subject to the domestic DRC, which 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 RC 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, see below). More here.

Mobile telephones and computer chips

In order to counter missing trader intra-community fraud (‘MTIC’), supplies of mobile telephones and computer chips which are made by one VAT registered business to another and valued at £5,000 and over are subject to the reverse charge. This means that the purchaser rather than the seller is responsible for accounting for VAT due.

Road fuel and power for private use

When business fuel is used privately, self-supply charges apply based on HMRC’s published road fuel scale charges, applied per vehicle per quarter.

Alternatively, businesses can maintain detailed mileage records for actual business use percentage calculations.

Land and buildings…. and motor cars

There are certain circumstances where land and buildings must be treated as a self supply… but that is a whole new subject in itself… as is supplies in the motor trade.

Even if the result of a self-supply or reverse charge is VAT neutral HMRC is within its rights to assess and levy penalties and interest in cases where the charge has not been applied; which always seems unfair. However, more often than not simple accounting entries will deal with the matter…. if the circumstances are recognised and it is remembered to actually make the entries!

VAT: Error corrections – two new updates and a helpful flowchart

By Marcus Ward 9 September 2025

VAT Notice 700/45 How to correct VAT errors and make adjustments or claims has been updated. The Notice sets out how to amend a business’ VAT records if errors have been made, how to correct errors on VAT returns, and how to claim a refund if VAT declarations have been overstated. The changes are:

information on how and when to correct VAT errors
what happens if corrections are not made
information about claiming input tax
more information about how underpayments and overpayments are paid
HMRC’s response time after receiving an error correction
clarification of the unjust enrichment rules
the reimbursement scheme
how HMRC repays interest owed on overpayments

Additionally, HMRC’s guidance: Check how to tell HMRC about VAT return errors has been updated.

This guidance explains the requirements for updating a VAT return, and how to make a correction online or tell HMRC in writing about errors. The update states that it is no longer possible to correct errors on VAT returns using form VAT652.

Basically, the guidance sets out how to report errors of £10,000 or more (net of all errors). This broadly comes down to using the online service or adjusting a current VAT return.

Please see our flowchart on error reporting Error Reporting Flowchart

VAT: What is a TOGC? Why is it important?

By Marcus Ward 19 August 2025

What is a Transfer of a Going Concern (TOGC)?

Normally the sale of the assets of a VAT registered business will be subject to VAT at the appropriate rate. A TOGC, however is the sale of a business including assets which must be treated as a matter of law, as “neither a supply of goods nor a supply of services” by virtue of meeting certain conditions. It is always the seller who is responsible for applying the correct VAT treatment and will be required to support their decision.

Where the sale meets the conditions, the supply is outside the scope of VAT and therefore VAT is not chargeable.

The word ‘business’ has the meaning set out in The VAT Act 1994, section 94 and ‘going concern’ has the meaning that at the point in time to which the description applies, the business is live or operating and has all parts and features necessary to keep it in operation, as distinct from its being only an inert aggregation of assets.

TOGC Conditions

The conditions for VAT free treatment of a TOGC:

The assets must be sold as a business, or part of a business, as a going concern
The assets must be used by the transferee in carrying on the same kind of business, whether or not as part of any existing business, as that carried on by the transferor in relation to that part (HMRC guidance uses the words “intend to use…” which, in some cases may provide additional comfort)
There must be no break in trading
Where the seller is a taxable person (VAT registered) the purchaser must be a taxable person already or immediately become, as a result of the transfer, a taxable person
Where only part of a business is sold it must be capable of separate operation
There must not be a series of immediately consecutive transfers
Where the transfer includes property which is standard-rated, either because the seller has opted to tax it or because it is a ‘new’ or uncompleted commercial building the purchaser must opt to tax the property and notify this to HMRC no later than the date of the supply. This may be the date of completion or, if earlier, the date of receipt of payment or part payment (eg; a deposit). There are additional anti-avoidance requirements regarding the buyer’s option to tax

Please note that the above list has been compiled for this article from; the legislation, HMRC guidance and case law. Specific advice must be sought.

Property transfer

The sale of a property may qualify for TOGC if the above tests are met. Usually, but not exclusively, a TOGC sale is the sale of a tenanted building when the sale is with the benefit of the existing lease(s) – (the sale of a property rental business rather than of the property itself). Another example of a property TOGC is where a property under construction is sold (a development business). As may be seen, timing with a property TOGC is of utmost importance. For example, an option to tax one day late will invalidate TOGC treatment. A guide to land and property.

What purpose do the TOGC rules serve?

The TOGC provisions are intended to simplify accounting for VAT when a business changes hands. The main purposes are to:

relieve the buyer from the burden of funding VAT on the purchase, helping businesses by improving their cash flow and avoiding the need to separately value assets which may be liable at different rates or are exempt and which have been sold as a whole
protect government revenue by removing a charge to tax and entitlement to input tax where the output tax may not be paid to HMRC, for example, where a business charges tax, which is claimed by the new business but not paid by the selling business

What if it goes wrong?

TOGC treatment is not optional. A sale is either a TOGC or it isn’t. It is a rare situation in that the VAT treatment depends on; what the purchaser’s intentions are, what the seller is told, and what the purchaser actually does. All this being outside the seller’s control.

Add VAT when TOGC treatment applies:

Often, the TOGC point can be missed, especially in complex property transactions.

The addition of VAT is sometimes considered a “safe” VAT position. However, output tax will have been charged incorrectly, which means that when the buyer claims VAT shown on the relevant invoice, this will be disallowed. This can lead to;

potential penalties and interest from HMRC
the buyer having to recover the VAT payment (often the seller, having sold a business can be difficult to track down and then obtain payment from)
significant cash flow issues (HMRC will need to be repaid the input tax claim immediately)
if a property sale, SDLT is likely to be overpaid

Sale treated as a TOGC when it is a taxable supply:

When VAT free TOGC treatment is applied to a taxable supply (possibly as one, or more of the TOGC conditions are not met) then there is a tax underdeclaration. The seller will be assessed by HMRC and penalties and interest are likely to be levied. There is then the seller’s requirement to attempt to obtain the VAT payment from the buyer. Similarly to above, this is not always straightforward or possible and it may be that the contract prohibits additional payment. There is likely to be unexpected funding issues for the buyer if (s)he does decide to make the payment.

Considering the usually high value of sales of businesses, the VAT cost of getting it wrong can be significant.

Summary

This is a complex area of the tax and an easy issue to miss when there are a considerable number of other factors to consider when a business is sold. Extensive case law (example here and changes to HMRC policy here) insists that there is often a dichotomy between a commercial interpretation of a going concern and HMRC’s view. I sometimes find that the buyer’s intentions change such that the TOGC initially applied becomes invalid when the change in the use of assets (from what was notified to the seller) actually takes place. HMRC is not always sympathetic in these situations. One of the questions I am often asked is: “How long does the buyer have to operate the business after purchase so that TOGC treatment applies?” Unsurprisingly, there is no set answer to this and HMRC do not set a specific period. My view, and it is just my view, is that an absolute minimum time is one VAT quarter.

Contracts are important in most TOGC cases, so it really pays to review them from a VAT perspective.

I very strongly advise that specialist advice is obtained in cases where a business, or property is sold. And yes, I know I would say that!

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

By Marcus Ward 5 August 2025

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 .

A VAT Did you know?

By Marcus Ward 22 July 2025

Sweetened rice cakes are zero-rated, but savoury flavoured ones are VATable.

BUT… The problem area is salted rice cakes. Lightly salted cakes are considered to require further preparation before consumption (and are therefore zero-rated) whereas more heavily salted rice cakes do not and are standard rated. However, there is no guideline as to where this borderline falls .

VAT: Input tax incurred on the management of pension funds

By Marcus Ward 1 July 2025

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 Marcus Ward 24 June 2025

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.