Category Archives: VAT Basics

VAT: Transactions involving Bitcoin

By   21 July 2025
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I have written about this subject a number of times about transactions involving cryptocurrencies, and considering the increased use of them, it seems timely to provide an update on the VAT treatment of certain business activities which use Bitcoins as a value for exchange, or payment for goods or services.

What is cryptocurrency?

Cryptocurrency is a line of computer code that holds monetary value. Cryptocurrency is also known as digital currency and it is a form of money that is created by mathematical computations. In order for a Bitcoin transaction to take place, a verification process is needed, this is provided by millions of computer users called miners and the monitoring is called mining. Transactions are recorded in the blockchain which is public and contains records of each and every transaction that takes place. Cryptocurrency is not tangible, although they may be exchanged for traditional cash. It is a decentralised digital currency without a central bank or single administrator (which initially made it attractive) and can be sent from user to user on the peer-to-peer network without the need for intermediaries.

What is Bitcoin?

Bitcoin was the first popular cryptocurrency and it first appeared in 2009. The advantage of bitcoin is that it can be stored offline on the owner’s local hardware (a process called cold storage) which protects the currency from being taken by others. If a person loses access to the hardware that contains the bitcoins, the currency is lost forever, and it is estimated that as much as 23% of bitcoin has been mislaid by miners and/or investors.

Exchange between currencies and bitcoin

The VAT treatment of transactions exchanging traditional currencies for Bitcoin, or Bitcoin for currencies carried out for consideration (added by the supplier) are exempt services in a similar way to any other currency transactions via The VAT Act 1994, Schedule 9, group 5, item 1.

Paying for goods or services using Bitcoin

Similar to any other payment method, simply using Bitcoin to obtain goods or services is outside the scope of VAT and no VAT is due on the value the Bitcoin represents. That is to say that the authorities do not consider that such a transaction is a barter.

Provision of goods or services in return for Bitcoin payment

The provision of goods or services paid for in Bitcoin are treated in a similar way as any supplied for consideration consisting of

  • Traditional currencies, or
  • Non-monetary consideration

and the value is; anything received by the supplier in consideration of that supply.

Should the consideration be in Bitcoin, there two alternatives for the conversion of foreign currencies into a main currency (although these were drafted before the introduction of Bitcoin and originally relate simply to foreign currencies)

  • the latest exchange rate recorded on the most representative exchange market, or
  • the latest exchange rate published by the European Central Bank

However, as above, because Bitcoin is not administered by any bank, this may make valuation difficult. The VAT Committee of the European Commission (EC) has indicated that a potential resolution is to use Open Market Rate (OMR*) as the exchange of the virtual currency. This would be the responsibility of the supplier. This is likely to be commercially available information from the websites of the likes of; coindesk, Cryptocompare or Cointelegraph for eg.

All of the above seems logical, although confirmation provided by the VAT Committee is welcome.

* OMR is the amount for which an asset is transferred between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion.

VAT: HMRC Annual report and accounts to 31 March 2025

By   21 July 2025
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HMRC has published its annual report and accounts 2024 to 2025 on 17 July 2025.

Highlights

  • Total tax receipts were £875.9 billion – a 3.9% increase from 2023/24
  • VAT revenue was £178.5 billion – an increase of £13.0 billion on 2023/24 figures
  • 5,500 new compliance officers for HMRC
  • A focus on technology transformation including the use of AI
  • Aim to bring in an additional £7.5 billion per year by 2029/30 by an increased use of technology
  • Focus on improving ‘customer’ service (taxpayers!)
  • 310 prosecutions brought as a result of our criminal investigations, securing 281 convictions
  • 76.2% proportion of customer service interactions made through automated or digital self-serve channels
  • 2.8 million number of new HMRC app users
  • 30m+ VAT returns processed by Making Tax Digital for VAT
  • 26-40 hours saved per year, on average, for each business using fully functional MTD for VAT software
  • 78 million declarations made on HMRC Customs Declaration Service
  • £5.1 million financial penalties issued for non-compliance with money laundering regulations
  • HMRC three ongoing priorities:
    • closing the tax gap
    • improving day-to-day performance and the customer experience
    • driving reform and modernisation of the UK’s tax and customs system .

VAT: Holiday Lets – don’t get caught out

By   10 July 2025
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Further to the usual complexity with VAT and property, I have been increasingly asked about the VAT position of holiday lets, so, with the holiday season in full swing, this is a timely piece on the subject.

All residential letting is exempt… except holiday lets, which are standard rated at 20%. So, what is the difference? After all a house is a house, but the VAT treatment depends on how the property is advertised or “held out”.

If a property is held out for holiday accommodation, then the rental income is taxable.

What is holiday accommodation?

Holiday accommodation includes, but is not restricted to; any house, flat, chalet, villa, beach hut, tent, caravan or houseboat. Accommodation advertised or held out as suitable for holiday or leisure use is always treated as holiday accommodation. Also, increasingly, it is common for farms and estates to have cottages and converted barns within their grounds, which are exploited as furnished holiday lets so this use must be recognised for VAT purposes. Residential accommodation that just happens to be situated at a holiday resort is not necessarily holiday accommodation.

This treats holiday lets the same way as hotels, inns and B&B were VAT applies, which is fair.

Off-season lettings

If holiday accommodation is let during off-season, it should be treated as exempt from VAT provided it is let as residential accommodation for more than 28 days and holiday trade in the area is clearly seasonal.

What does this mean?

If the letting business exceeds the VAT registration threshold, currently £90,000, it must register for VAT. This usually means that either the business would lose a sixth of its income to HMRC or its letting fees would increase by 20% – which is not usually an option in a particularly price sensitive market. The only upside to registration is that VAT incurred on costs relating to the letting (input tax) would be recoverable. This may be on expenditure such as; agents’ fees, maintenance, refurbishments, laundry, websites and advertising etc.

Agents

If a property owner provides a property to a holiday letting agent and the agent itself provides the letting directly to the end users, this does not avoid the standard rating, even if the agent pays a guaranteed rent to the freeholder. This can catch some property owners out.

Sale of the property

When the owner sells the property, although it may have been used for standard rated purposes, the sale is usually treated as exempt. However, zero rating may be available for the first sale or long lease if it is a new dwelling with no occupancy restrictions. The sale of a “pure” holiday property is likely to be standard rated if it is less than three years old. To add to the complexity, it is also possible that the sale may qualify as a VAT free Transfer Of A Going Concern (TOGC).  These are important distinctions because they determine, not only if VAT is chargeable, but, if the sale is exempt, there is usually a clawback of input tax previously claimed, potentially visa the Capital Goods Scheme (CGS).

Overseas properties

A final point: please do not forget overseas property lets. My article here sets out the tax risks.

Summary

There are a lot of VAT pitfalls for a business providing holiday lettings. But for a single site business, unless the property is large or very high end, it is likely that the income will below £90,000 and VAT can be ignored. However, it is important to monitor income and costs to establish whether:

  • registration is required
  • voluntary registration is beneficial (usually, but not exclusively, for major refurbishment projects).

VAT Notice 708: Buildings and construction updated

By   1 July 2025
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This Notice explains how to establish the appropriate VAT rate on building work and materials for contractors, sub-contractors and developers.

The construction of a new building and work to an existing building is normally standard rated. However, there are exceptions to this, inter alia:

  • construction of new qualifying dwellings and communal residential buildings, and certain new buildings used by charities ― zero-rated
  • conversion for a housing association of a non-residential building into a qualifying dwelling or communal residential building ― zero-rated
  • alterations to suit the condition of people with disabilities ― zero-rated
  • first time gas and electricity connections ― zero-rated
  • conversion of a non-residential building into a qualifying dwelling or communal residential building ― reduced rate of VAT 5%
  • renovation or alteration of empty residential premises ― reduced rate of VAT 5%
  • installation of energy saving materials, grant funded heating system measures and qualifying security goods ― reduced rate of VAT 5%
  • installation of mobility aids for the elderly for use in domestic accommodation ― reduced rate of VAT 5%

(These are just some examples; other works may also qualify for zero or reduced rating)

Amendments

Paragraph 7 (re: the conversion of premises to a different residential use) on reduced rated work has been amended at para 7.6 as there was uncertainty over the previous drafting.

Paragraph 8.4 has been revised to more accurately reflect the rules on the installation of building materials which are reduce rated.

A VAT Did you know?

By   30 June 2025
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Lugworms and maggots are standard rated, unless they are also suitable for human consumption, in which case they may be zero-rated – Yum.

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: Updated Notice – Local authorities and similar bodies

By   10 June 2025
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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: New guidance on exception from registration

By   2 June 2025
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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.

A VAT Did you know?

By   20 May 2025
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The sale of ostriches is zero rated, but kangaroos are standard rated. Both are sold as food.

Transfer of a VAT registration number – form update

By   19 May 2025
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A business can request transfer of a VAT registration number if it is taking over a company and wishes to use the previous owner’s VAT registration number, or the status of a business is changing, eg; a sole proprietor business incorporates or changes to a partnership. To do this form VAT68 is used.

VAT68

To transfer a VAT registration number because of a change in company ownership, the buying entity must complete both an application for VAT registration and form VAT68. The application may be independent from any existing registration, or it can be an application to join an existing VAT group or form a new one.

A form VAT68 can be submitted via email to HMRC at btc.changeoflegalentity@gov.uk with the VAT registration service (VRS) number included in the email subject line, or sent to the postal address shown on the form.

The update includes the addition of information to confirm an application for VAT registration should be completed.

Care must also be taken when buying or selling a business as the Transfer Of a Going Concern (TOGC) rules can be complex and as with all ‘one-off’ transactions, they are usually out of the ordinary and sometimes high value, giving rise to potential VAT issues. Please see: VAT triggerpoints.

Warning

Unless there is a good reason to transfer a VAT number, we usually advise that this is not done. This is to avoid inheriting the tax history of the previous owner. The buyer of the business can be held responsible for past errors, late payments, ongoing VAT issues etc. These may not be apparent, even after thorough due diligence.