Category Archives: VAT Legislation

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.

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 Success Stories

    By   22 April 2025
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    I often write about how it is important to seek VAT advice at the right time, see triggerpoints. So, I thought that I’d give some practical examples on where we have saved our clients money, time and aggravation.

    Investment company

    HMRC denied claims for input tax incurred on costs relating to the potential acquisition of an overseas business and threatened to deregister the plc as it was not, currently, making taxable supplies. Additionally, HMRC contended that even if VAT registration was appropriate, the input tax incurred did not relate to taxable supplies and was therefore blocked.

    We were able to persuade HMRC that our client had a right to be VAT registered because it intended to make taxable supplies (supplies with a place of supply outside the UK which would have been taxable if made in the UK) and that the input tax was recoverable as it related to these intended taxable supplies (management charges to the acquired business). This is a hot topic at the moment, but we were able to eventually demonstrate, with considerable and detailed evidence that there was a true intention.

    This meant that UK VAT registration was correct and input tax running into hundreds of thousands of pounds incurred in the UK was repaid to our client.

    Restaurant

    We identified and submitted a claim for a West End restaurant for nearly £300,000 overpaid output tax. We finally agreed the repayment with HMRC after dealing with issues such as the quantum of the claim and unjust enrichment.

    Developer

    Our property developing client specialises in very high-end residential projects in exclusive parts of London. They built a dwelling using an existing façade and part of a side elevation. We contended that it was a new build (zero rated sale and no VAT on construction costs and full input tax recovery on other costs). HMRC took the view that it was work on an existing dwelling so that 5% applied and input tax was not recoverable. After site visits, detailed plans, current and historical photograph evidence HMRC accepted the holy grail of new build. The overall cost of the project was tens of millions.

    Charity

    A charity client was supplying services to the NHS. The issue was whether they were standard rated supplies of staff or exempt medical services. We argued successfully that, despite previous rulings, the supplies were exempt, which benefited all parties. Our client was able to deregister from VAT, but not only that, we persuaded HMRC that input tax previously claimed could be kept. This was a rather pleasant surprise outcome.  We also avoided any penalties and interest so that VAT did not represent a cost to the charity in any way.  If the VAT was required to be repaid to HMRC it is likely that the charity would have been wound up.

    Shoot

    A group of friends met to shoot game as a hobby. They made financial contributions to the syndicate in order to take part. HMRC considered that this was a business activity and threatened to go back over 40 years and assess for output tax on the syndicate’s takings which amounted to many hundreds of thousands of pounds and would have meant the shoot could not continue. We appealed the decision to retrospectively register the syndicate.

    After a four-year battle HMRC settled on the steps of the Tribunal. We were able to demonstrate that the syndicate was run on a cost sharing basis and is not “an activity likely to be carried out by a private undertaking on a market, organised within a professional framework and generally performed in the interest of generating a profit.” – A happy client.

    Chemist

    We assisted a chemist client who, for unfortunate reasons, had not been able to submit proper VAT returns for a number of years.  We were able to reconstruct the VAT records which showed a repayment of circa £500,000 of VAT was due.  We successfully negotiated with HMRC and assisted with the inspection which was generated by the claim.

    The message? Never accept a HMRC decision, and seek good advice!

    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.

    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:

    A VAT Did you know?

    By   26 March 2025
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    Oils and fats used for animal food is zero-rated, unless it is waste oil from a fish and chip shop – which is standard rated… even if it is used to feed animals.

    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: Input tax claims – alternative evidence

    By   12 February 2025
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    What can be used to make a claim?

    It is well known that in order to claim input tax on expenditure a business is required to have a valid tax invoice to support it. But what if there is no VAT invoice? Can HMRC accept any other evidence to support a claim? Well, the answer is yes… sometimes.

    HMRC has discretion provided by legislation: VAT Regulations 1995/2518 Reg 29(2). Specifically, the wording most relevant here is “…such other documentary evidence of the charge to VAT as the Commissioners may direct.” Broadly, a business must hold the correct evidence before being able to exercise the right to deduct.

    Where claims to deduct VAT are not supported by a valid VAT invoice HMRC staff are required to consider whether there is satisfactory alternative evidence of the taxable supply available to support deduction. HMRC staff should not simply refuse a claim without giving reasonable consideration to such evidence. HMRC has a duty to ensure that taxpayers pay no more tax than is properly due. However, this obligation is balanced against a duty to protect the public revenue.

    Full details of tax invoices here.

    What HMRC consider

    HMRC staff are required to work through the following checklist:

    • Does the business have alternative documentary evidence other than an invoice (for example a supplier statement)?
    • Does the business have evidence of receipt of a taxable supply on which VAT has been charged?
    • Does the business have evidence of payment?
    • Does the business have evidence of how the goods/services have been consumed or evidence regarding their onward supply?
    • How did the business know the supplier existed?
    • How was the business relationship with the supplier established? For example: How was contact made?
    • Does the business know where the supplier operates from (have staff visited?)
    • How did the business contact them?
    • How does the business know the supplier can supply the goods or services?
    • If goods, how does the business know they are not stolen?
    • How does the business return faulty supplies?

    Outcome

    If the responses to the above tests are credible, HMRC staff should exercise their discretion to allow the taxpayer to deduct the input tax. Overall, HMRC is required to be satisfied that sufficient evidence is held by the business which demonstrates that VAT has been paid on a taxable supply of goods or services received by that business and which were used by that business for its taxable activities

    Challenge HMRC’s decision

    A business may only challenge HMRC’s decision not to allow a claim (did not exercise its discretion) if it acted in an unfair or unreasonable way. In these cases, the onus is on the taxpayer to demonstrate that HMRC have been unreasonable in not using the available discretion. This is quite often a difficult thing to do.

    Case law

    Not surprisingly, there is significant case law on this subject. The most relevant and recent being the Upper Tribunal (UT) cases of James Boyce Scandico Ltdv and Wasteaway Shropshire Limited.

    Tips

    If possible, always obtain a proper tax invoice from a supplier, and don’t lose it! The level of evidence required when no invoice is held usually depends on the value of the claim. There would be a difference between persuading an inspector that £20 input tax on stationery is recoverable and the claiming of £200,000 VAT on a property purchase is permissible. As always in VAT, if you get it wrong and claim VAT without the appropriate evidence there is likely to be a penalty to pay.

    If you, or your clients are in dispute with HMRC on input tax claims, please contact us.

    VAT – Fuel and power guidance updated

    By   11 February 2025
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    HMRC has updated its notice Updated its Notice 701/19: Fuel and power.

    The Notice explains how suppliers and users should treat supplies of fuel and power for VAT purposes and it sets out how to treat a number of other supplies connected with fuel and power.

    The update provides more detail of supplies for domestic use.

    Supplies of fuel and power for domestic use are eligible for the reduced rate of 5%.

    The provider must be certain that the supply is to a dwelling or certain types of residential accommodation. Examples of allowed residential accommodation are:

    • armed forces residential accommodation
    • caravans
    • children’s homes
    • homes providing care for the elderly or disabled, people with a past or present dependence on alcohol or drugs or people with a past or present mental disorder
    • houseboats
    • houses, flats or other dwellings
    • hospices
    • institutions that are the sole or main residence of at least 90% of their residents
    • monasteries, nunneries and similar religious communities
    • school and university residential accommodation for students or pupils
    • self catering holiday accommodation

    The following buildings are not considered residential accommodation for the purposes of fuel and power:

    • hospitals
    • prisons or similar establishments
    • hotels, inns or similar establishments

    VAT penalties and surcharges – time limits for appeals. The Excel case

    By   10 February 2025
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    Latest from the courts

    The recent Xcel Consult Limited First-Tier Tribunal (FTT) case serves as a reminder on the tight time limits for appealing against VAT penalties and surcharges.

    The VAT Act 1994 Section 83G sets out a statutory time limit for bringing appeals in respect of VAT penalties and surcharges of the kind in question in this case. An appeal is to be made to the tribunal before the end of the period of 30 days beginning with the date of the document notifying the decision to which the appeal relates.

    Section 83G(6) provides that an appeal may be made after the expiry of the statutory period if the Tribunal gives permission. In deciding whether to give permission to allow the late appeal, the three-stage test set out in Maitland is applied. These tests are:

    (1) establish the length of the delay and whether it is serious and/or significant

    (2) establish the reason or reasons why the delay occurred

    (3) evaluate all the circumstances of the case, using a balancing exercise to assess the merits of the reason(s) given for the delay and the prejudice which would be caused to both parties by granting or refusing permission, and in doing so take into account “the particular importance of the need for litigation to be conducted efficiently and at proportionate cost, and for statutory time limits to be respected”.

    Commentary

    Our advice is to always respond within the 30 day limit, as relying on an out of time appeal can be risky. If that is not possible, an appeal should be submitted asap to ensure that test 1) above is not a reason to reject a submission.