Lugworms and maggots are standard rated, unless they are also suitable for human consumption, in which case they may be zero-rated – Yum.
Category Archives: VAT Basics
VAT: New guidance – Online Marketplace supplies
HMRC issued new guidance for businesses which sell goods using an online marketplace on 20 June 2025. It enables online marketplace (an e-commerce site that connects sellers with buyers where transactions are managed by the website owner) operators to check if a seller is established outside the UK, so that it can establish which party is liable for VAT on sales.
Background
An online marketplace operator is liable for VAT on goods of any value that are both:
- located in the UK at the point of sale
- sold by an overseas business through the operator’s online marketplace
The operator needs to establish who is liable for VAT on sales of goods which are facilitated. To confirm this, the operator needs to take all reasonable steps to check whether a seller is established outside the UK. A business is required to keep evidence to show that it has taken all reasonable steps.
This new guidance includes details about how to check where an online marketplace seller is established and provides information about checks and process businesses can put in place. HMRC will review this evidence and will consider all evidence which has been used to establish where the seller is established. In each case, it will consider:
- what steps were performed, including any that are designed to address the risks of a particular case
- to what extent steps were appropriate, adequate and timely in relation to addressing the risks identified
- what the results of the checks indicate
- whether a business took appropriate action in response to the results
Examples of checks
HMRC give the following examples of types of checks which might be undertaken to determine if an online seller is UK-established:
- check for a UK principal place of business
- check that the VAT registration available for the seller matches their legal name and details on HMRC’s Check a UK VAT number tool
- check that the seller is registered at Companies House with a UK address
- establish whether directors reside in the UK, eg; as shown on the Companies House register
- check that payment or financial information shows a UK presence. This can include:
- UK bank or credit card details
- UK merchant address attached to the seller bank account
- other financial data provided by independent payment service providers
- check other commercially relevant information such as credit checks and other background checks from third party sources
- check that the device used by the seller has a UK IP address, or check another method of geolocation
- establish whether the seller uses a phone number with a UK country code
Overview of online sellers
More general guidance from HMRC on online sellers:
- charging VAT when using an online marketplace to sell goods to customers in the UK
- charging VAT when goods are sold if you’re an online marketplace operator
- charging VAT on goods sold direct to customers in the UK
The rules aim to avoid VAT evasion by non-UK online sellers.
VAT: Updated Notice – Local authorities and similar bodies
Notice 749 has been updated. This is guidance for Local authorities, government departments, non-departmental public bodies, NHS bodies, local government bodies, the police and the fire and rescue services.
It sets out:
- which activities of local authorities and similar bodies are business or non-business for VAT purposes
- the VAT registration requirements for local authorities
- when local authorities and certain similar bodies can reclaim VAT incurred on costs that relate to their non-business activities
The changes amend:
- Section ‘7.2 Insignificant proportion’ has been updated to remove a reference to VAT attributed and apportioned to exempt supplies.
- Section ‘7.5 What to do if you want to opt for a special section 33 VAT recovery method to recover the VAT incurred’ the deadline for using a special section 33 recovery method has been changed from 31 October to 30 September following the end of the financial year.
Section 33 bodies
“Section 33 bodies” per The VAT Act 1994, section 33)
These entities have special VAT treatment which is effectively the opposite of normal VAT rules. To avoid a cost to the taxpayer, these entities are permitted to specifically recover input tax that relates to non-business activities. Nobody said that VAT was straightforward and in these cases, the VAT rules are inverted!
We act for many Local Authorities and Academies. Please contact us should you, or your clients, have any queries on this matter.
VAT: New guidance on exception from registration
HMRC has published new guidance which sets out how to apply for VAT registration exception if a business has temporarily exceeded the VAT registration threshold of £90,000 in any 12-month period (a rolling calculation).
What is registration exception?
If a business has a one-off increase in income it can apply for a registration exception. If its taxable turnover goes over the threshold temporarily it can write to HMRC with evidence showing why the taxable turnover will not exceed the deregistration threshold (currently £88,000 in the next 12 months). HMRC will consider an exception and write confirming if a business will receive one. If not, HMRC will compulsorily register the business for VAT. A business will need to formally apply to HMRC to make this exception official.
The guidance explains:
- when to apply
- how to apply
- what happens after the application
Forms
A business will need to complete forms VAT1 and VAT5EXC in order to apply for registration exception. HMRC will write to the applicant within 40 working days of receipt with a decision.
If HMRC approves the application for exception
HMRC will not register the business for VAT. However, this is a ‘one-off’ and does not mean that the business will never have to register.
The value of taxable supplies must be checked every month, to establish whether they have exceeded the registration threshold. If they have, the business must:
- register for VAT
- apply for exception again
If HMRC refuses the application for exception
The response letter will explain why, and the information provided on the form VAT 1 will be used to VAT register the business. The applicant will need to account for VAT from the date it was liable.
A VAT Did you know?
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
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.
VAT annual statistics updated
HMRC has updated its publication on the VAT official statistics from 2023 to 2024. It covers information on VAT receipts in the UK, statistics on the trader population and VAT registrations. The tables and commentary have been updated to reflect recent receipts.
Headlines
- total VAT receipts in the financial year 2023 to 2024 increased by 7% to £168 billion compared to £158 billion in 2022 to 2023
- the VAT population in 2023 to 2024 was 2,178,950, with 238,176 new registrations and 273,768 de-registrations in-year
- total net VAT liability in 2023 to 2024 was £173 billion
- the wholesale and retail sector was the largest contributor to net VAT liability (32%) with a total of £55 billion
- traders with an annual turnover of greater than £10 million paid 75% of total net VAT liability (£130 billion).
VAT Planning: design and build
Planning
The construction of a new house, and the materials used by the contractor to build it, are zero-rated. However, architect and other building professional fees, eg; surveyors, supervisors, engineers, project or construction management and consultants, are always standard rated; even in respect of a new build.
This will represent an absolute VAT cost to:
- individuals
- entities which will rent the house(s) after completion
- housing associations (in some circumstances)
- certain entities which are not in business
- any entity which will use the building(s) for other exempt purposes
- entities which do not sell the house(s) – so onward zero-rating is not possible
- any entity which cannot recover all of its input tax for various reasons
Aims
If it is not possible to structure matters so that these fees can be recovered (there are a number ways to do this, but not all will be available to all parties) then advisers need to consider ways to remove the VAT charge – this may also be preferable for cashflow purposes even if full input tax recovery is possible.
VAT Planning
Design and build – the steps
- the housebuilder creates a separately VAT registered design and build company (newco)
- newco purchases the professional services and construction services and incurs the VAT on these (the construction element is zero-rated)
- these supplies are incorporated into a single onward supply of zero-rated design and build services to the housebuilder (a bundle) – the professional services are a cost component of the construction
- zero rating applies to the supply to the housebuilder as the predominant supply of the bundle is the construction of new dwellings
- newco recovers the input tax incurred on professional fees etc, as it relates to an onward taxable supply
- newco is in a repayment position and HMRC refunds the VAT incurred on the costs – often after a pre-cred query
It is also possible to use an independent design and build company, or engage a contractor to carry out both the design and construction elements of the project with a similar result.
Considerations
It is important to implement the planning correctly. This means that appropriate contracts must be in place, the operation is carried out on sound business principles (actual supplies are made and it is not simply the moving of money).
Arrangements
In order to evidence the proper commerciality of the structure, it is important to bear in mind that:
- appropriate contracts are in place
- proper invoicing is required
- the arrangements are at arm’s length
- a profit for newco would emphasise the commercial aspect
- all parties’ accounts reflect the transactions
- newco combines all of its costs (including overheads/admin etc) and supplies them to the housebuilder as part of a single package of zero-rated design and build services
- newco acts as principal and not agent (that the professional services are not disbursements)
- the newco and the housebuilder are not in the same VAT group
- care should be taken if loans are required (they may compromise arm’s length and genuine commercial contentions)
HMRC’s view
In HMRC’s Internal Guidance Manual VCONST02720 it states that:
“Zero-rating the construction of buildings: services excluded from zero rating: design and build
Architectural or design services supplied as part of a design and build contract can be treated as part of the zero-rated supply of construction services.
A typical design and build contract will require the contractor to complete the design for the works and complete the construction of the works.
In such circumstances HM Revenue & Customs (HMRC) sees the design element as a cost component of the construction and not as a separate supply of architectural services which would be liable to VAT at the standard rate”.
Consequently, this planning is recognised and accepted by HMRC, however, it is important that it is applied effectively so it is difficult for HMRC to challenge.
New VAT road fuel scale charges from 1 May 2025
HMRC has published new Road Fuel Scale Charges (RFSC) for the period 1 May 2025 to 30 April 2026.
RFSC
A scale charge is a way of accounting for output tax on road fuel bought by a business for cars which is then put to private use. If a business uses the scale charge, it can recover all the VAT charged on road fuel without having to identify specific business and private use. The charge is calculated on a flat rate basis according to the CO2 emissions of the car.
More on motoring expenses here.
A business will need to calculate the correct RFSC based on a car’s CO2 emissions, and the length of its VAT accounting period. This will be either one, three, or twelve months. The CO2 emissions figure may be found here if the information is not available in the log book.
Alternatives to using RFSC
- use detailed mileage records to separate business mileage from private mileage and only claim for the business element
- claim no input tax
Business/private mileage calculation example:
- Total mileage: 4,290
- Business mileage: 3,165
- Cost of fuel: £368.
- Business mileage: £368 × (3,165 ÷ 4,290) = £271.49
- Claimable input tax: £271.49 × VAT fraction = £45.25
VAT: HMRC to close online forums
HMRC has announced that it will be closing its online forums and shifting to digital support with effect 30 June 2025.
This decision has been taken as a result of increasing popularity of HMRC’s newer digital support (set out below) and to move towards a more modernised approach.
As an alternative to the previous forums, the following HMRC digital support channels can be used:
- Webchat – an agent only channel which offers a faster alternative to telephony
- @HMRCcustomers on X (formerly Twitter) – for general queries
- Agent Talking Points webinars – for information on a range of subjects with opportunities for participants to submit questions
- tax agents’ handbook – for information to help tax agents and advisers find guidance, use HMRC services and contact HMRC
- service dashboard – for information on current service levels for post and online requests
- Agent Updates – a monthly online digest of information specifically for the agent community