If you buy a hamster or gerbil in a pet shop, you will pay tax on it but if you buy a rabbit, it will be VAT free.
Category Archives: VAT- Output Tax
Updated VAT Notice 742A – Opting to tax land and buildings
HMRC has updated Notice 742A which explains the effect of an option to tax and will help a business decide whether to exercise that option. It also sets out whether an optor needs permission from HMRC before an option can be made and how to notify HMRC of a decision.
The update clarifies an important point: where opted land or building remain an asset on hand at the point of VAT registration cancellation, output tax must be accounted for on the value of that asset. The update also removes the information about a temporary change to the time limit for notifying an option as this has ended.
A VAT Did you know?
Salted nuts are standard rated, but packets of nuts which are still in their shells are VAT free.
Reduced VAT rate for children’s meals, tickets, and family attractions
HMRC has announced a temporary reduced VAT rate of 5% will apply to the supply of children’s meals, tickets, and family attractions from 25 June 2026 to 1 September 2026 – Revenue and Customs Brief 5 (2026).
The brief explains a temporary reduced rate of VAT of 5% that will apply to:
- certain supplies of children’s meals
- children’s admission to theatres, cinemas, concerts, exhibitions and shows
- all admission tickets to attractions suitable for families with children
Children’s meals
The reduced rate applies to the supply of children’s meals where both of the following conditions are met:
- the meal is held out for sale only as a meal for children
- the meal is supplied as part of catering services by a restaurant, café or similar establishment for consumption on the premises
Children’s theatre and cinema tickets
The reduced rate applies to children’s admission tickets to:
- cinema screenings
- theatrical performances, shows and concerts
- exhibitions
A children’s ticket is one that is held out for sale only as a right of admission for a child, based on how it is marketed, priced and presented by the supplier.
Attractions
The reduced rate applies to charges made for a right of admission for any customers, regardless of age, to qualifying attractions that are suitable for families with children.
This includes admission to the following venues, unless that admission is already exempt from VAT (for example because it is supplied by a qualifying charity or other eligible body):
- amusement parks and fairs, including water parks and theme parks (excluding pay-per-ride attractions)
- circuses
- adventure parks, including outdoor adventure centres
- museums and similar cultural facilities, including planetariums, heritage sites, nature reserves and botanical gardens
- zoos, aquariums, wildlife parks and farm visitor attractions
- soft play centres, indoor bounce parks and indoor play facilities
- observation attractions, including viewing platforms, towers and observation wheels
Only supplies of admission to these types of attractions fall within the scope of the relief.
This Brief will be relevant to businesses making consumer‑facing supplies to families with children during the school summer holidays. This includes, but is not limited to, the following types of organisations and their advisers:
- restaurants, cafés and similar catering establishments
- cinemas, theatres, exhibition and performance venues
- operators of circuses, fairs, amusement parks, theme parks, adventure parks and water parks, zoos and other animal attractions, soft play centres, observation attractions and certain other family-focused attractions
- museums and similar cultural attractions
HMRC publish VAT receipts for the UK
HMRC has published the latest summary of HMRC tax receipts, National Insurance contributions (NICs), and expenditure for the UK. It includes historical receipts on a monthly and annual basis for all taxes administered by HMRC.
VAT highlights:
- annual receipts over the last 20 years have grown from £77.4 billion in 2006 to 2007, to £180.7 billion in 2025 to 2026
- receipts as a proportion of GDP over the last 20 years have grown from 5.2% in 2006 to 2007, to 5.9% in 2025 to 2026
- annual receipts in 2020 to 2021 fell to £101.7 billion (from £129.9 billion the year before), and this fall can be attributed to the VAT payment deferment policy and the temporary reduced 5% rate for hospitality, holiday accommodation and attractions, alongside wider economic impacts of COVID-19
- receipts in 2024 to 2025 are £171.0 billion and the relatively small growth from £168.4 billion in the previous year could be attributed a lower share of consumption on goods at the standard rate of VAT than was the case in 2023 to 2024
- receipts in 2025 to 2026 are £180.7 billion (5.9% as a proportion of GDP) which could be attributed to the nominal tax base for VAT increasing due to inflation and policy measures.
VAT: Public EV charging update
Further to the Charge My Street Limited case, which we considered here HMRC has published Policy Paper Revenue and Customs Brief 4 (2026): VAT liability of supplies of electricity from public electric vehicle charge points.
This paper sets out the VAT treatment of supplies of electricity from public EV charging points.
HMRC’s position remains that charging electric vehicles at public charge points is standard rated for VAT.
Supplies of fuel and power to a domestic premises are subject to the reduced rate of VAT at 5%. HMRC’s long-standing policy is that electric vehicle charge points located in public areas do not qualify as domestic premises and the standard rate of VAT applies to the supply of electricity at these locations.
The First-tier Tribunal found in favour of Charge My Street Limited. It concluded that Note 5(g) of Item 1 of Group 1 of Schedule 7A to the VAT Act 1994 covers supplies of electricity to an identified person at any identifiable premises, provided the total supplied does not exceed 1,000 kWh in a calendar month. The FTT clarified there is no additional requirement for the premises to be owned or controlled by the person receiving the supply, nor do the premises need to be buildings. This means locations such as public car parks may be included. The FTT decided that supplies of EV charging at public charging stations fell within the de minimis limit for supplies of electricity, and so were deemed to be for domestic use and, accordingly, subject to the reduced rate.
HMRC has applied for permission to appeal the First-tier Tribunal’s decision.
A VAT Did you know?
All alcoholic drinks are always standard rated. Alcohol-free beer and wines are similarly subject to VAT.
VAT and charities – updated guidance
HMRC has updated its guidance on How VAT affects charities. This includes details of a new relief from 1 April 2026 for VAT registered businesses donating goods to a charity (Section 5.5).
A VAT-registered business can zero-rate the donation of goods to a charity or its trading subsidiary provided that the goods are to be offered for sale.
From 1 April 2026, businesses do not have to account for VAT when they donate goods to a charity for:
- onward donation to an individual, another charity or another organisation
- use in the charity’s non-business activities
Goods may be donated without incurring a VAT charge when:
- the goods are eligible
-
A business donates goods for an eligible use
-
the goods are donated to a charity which is either registered with the Charity Commission, corresponding regulator (where required) or registered with HMRC for charity tax purposes
-
The donating business holds evidence that eligible goods have been donated to an eligible charity
Before 1 April 2026 businesses were required to account for VAT on a deemed supply when goods forming part of their assets were donated to a charity and input tax had originally been recovered on their purchase.
More on VAT and charities here.
VAT: Crowdfunding – What is taxable?
Crowdfunding is the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the internet on specifically designed platforms and is an alternative to traditional ways of raising finance. The model is usually based on three parties: the project initiator who proposes the idea or project to be funded, individuals or groups who support the idea, and a moderating organisation (the “platform”) that brings the parties together to launch the idea.
Crowdfunding is a major, growing source of funding for startups, charities, and creative projects, with the global market predicted to grow annually by around 15% from 2026 to 2033 with platforms like Kickstarter, Seedrs, Crowdcube, and GoFundMe being major players.
VAT Treatment
The VAT treatment of supplies that might potentially be made is no different to similar financing arrangements, for example; sponsorship, donations and investments made through more traditional routes. Whether a recipient of crowdfunding is liable to charge and pay VAT depends on the facts in each case.
Examples
Donations
- where nothing is given in return for the funding, it will be treated as a donation and not liable to VAT – the position is the same where all that the funder receives is a bare acknowledgement, such as a mention in a programme or something similar
Goods and/or services
- where the funder receives goods or services that have a real value associated with them, for example; clothing, tickets, DVDs, film viewings, output tax will be due
Combination
- where the payment is for a combination of the two examples above, if it is clear that the donation element is optional then that part of the sponsorship can be treated as a non-taxable donation and the supply will be taxable. If a donation element cannot be carved out, it is likely that all of the payment will be considered as VATable
Investment
- where the funding takes the form of an investment where the funder is entitled to a financial return such as; interest, dividends or profit share, any payment due to the funder is unlikely to be liable to output tax, The reason why most of these arrangements are outside the scope of VAT is that the provision of capital in a business venture is not seen as a supply for VAT purposes
Royalties
- if the arrangement is that the funder receives royalties based on a supply of intellectual property or some other similar benefit the payment is likely to be consideration for a taxable supply and output tax will be due
Loan-based
- Individuals lend money to businesses or people for interest payments. The making of any advance or the granting of any credit is exempt.
VAT registration
If income from the sources above which are deemed to be subject to VAT exceeds the VAT registration limit (currently £90,000 in any twelve-month period) the person, in whichever legal identity, such as; individual, company, partnership, Trust etc will be liable to register for VAT. If income is below this limit, it will be possible, but not mandatory to VAT register. The benefits of voluntary registration here.
Input tax recovery
If VAT registered, any input tax incurred on costs relating to crowdfunding is usually recoverable (see here for exceptions). However, if the costs relate to donations or some types of investment then input tax claims are specifically blocked as they would relate to non-business activities. If exempt supplies are made, attributable input tax is generally blocked unless it is de minimis.
Commentary
There can be difficulties in establishing the tax liability of crowdfunding and in a broader sense “sponsorship” in general. However, experience insists that the biggest issue is initially identifying that there may be a VAT issue at all. If you, or your clients are involved in crowdfunding, or have sponsors, it would be prudent to review the VAT treatment of the activities.
VAT: Recovery of input tax on fuel costs
Road Fuel Scale Charge (RFSC) simplification.
It is common for a staff member to use a car for both business and private purposes (a staff member also covers sole proprietors and partners). Input tax is only recoverable in respect of the business use, so an apportionment is required. This may be done in the following ways.
- Apply the RFSC. This is a set figure per month which represents a disallowance for private use and is repaid to HMRC
- Keep detailed mileage records and only claim for the business element
- If a business pays a mileage allowance for exact business miles travelled it may reclaim input tax on that actual payment. HMRC publish approved Advisory Fuel Rates, which are used to calculate the payments and the recoverable VAT
- Do not make a claim at all (if business mileage is minimal or the administration outweighs the cost benefit)
Application
One RFSC must be applied for each car that is used both privately and for business. The fuel scale charges are calculated according to a car’s CO2 emissions and the fixed charge is added to the output figure on the VAT return.
A business will need to check the relevant car’s CO2 emissions figure. This is available for the car’s log book. For dual fuel cars, the lower of the two figures is used.
The calculation
The RFSC allows a business to account for the VAT on fuel in monthly, quarterly or annual returns. When calculating VAT on fuel, if the relevant car has a CO2 emission of 160g, and the business files quarterly returns, the VAT inclusive consideration for a three-month period is £363.00.
The RFSC for the private use of the vehicle will then be calculated as follows: £363.00 x 1/6 (the VAT fraction of the total figure) = £60.50
In this example, the VAT output tax due to HMRC is £60.50 and this is included in Box 1 of the VAT return.
This amount will compensate for any private use of fuel where VAT has already been claimed on the initial purchase of the fuel.
Notes
If a business uses the Flat Rate Scheme no VAT is reclaimable on fuel and no scale charge is applicable.
The RFSC does not apply to commercial vehicles (vans, lorries etc) however, if there is a significant level of private mileage, VAT claims should be adjusted to exclude input tax on this.
HMRC publish updated RFSC valuation tables annually. The latest table is here
Input tax claims may be restricted due to partial exemption or non-business activities.
Help
HMRC have also published a useful ready reckoner tool which assists with the process here
Mileage payments
If a business recovers input VAT based on mileage payments made to employees, it must ensure that employees submit fuel VAT receipts evidencing that they have incurred costs and VAT on fuel. Without such receipts, HMRC may deny the VAT recovery on mileage reimbursements. Clearly, the total VAT incurred on fuel must exceed the business element claimed.
EVs
Details on charging electric vehicles here and here
More on motoring costs in general here.