Tag Archives: HMRC-publications

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

By   9 September 2025
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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 Land & Property: Who opts to tax? – Authorised signatories

By   8 September 2025
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Who opts to tax?

HMRC has published Public Notice 742A . Changes were made in connection to authorised signatories, in particular; corporate bodies, overseas entities and powers of attorney. It is important to establish who can sign an option to tax (OTT) form VAT1614A as getting it wrong may invalidate an OTT with potentially very expensive consequences.

A guide to the OTT here.

It seems an appropriate time to look at who can sign an OTT form. HMRC guidance states:

“The person responsible for making the decision and notifying the option to tax depends on the type of legal entity holding (or intending to hold) the interest in the land or building, and who within that entity has the authority to make decisions concerning VAT. In most cases it will be the sole proprietor, one or more partners (or trustees), a director or an authorised administrator. If you have appointed a third party to notify an option to tax on your behalf, HMRC requires written confirmation that the third party is authorised to do so.”

Some specific situations:

Beneficial owners

In cases where there is both a beneficial owner and a legal owner of land or buildings for VAT purposes it is the beneficial owner who is making the supply of the land or building. It is therefore the beneficial owner who should OTT. This may not be the case where the beneficiaries are numerous, such as unit trusts and pension funds. In these cases, the person deemed to be making the supply is the trustee who holds the legal interest and receives the immediate benefit of the consideration.

Joint owners

Joint ownership is where two entities purchase land or buildings together, or one party sells a share in property to another party. Usually, a supply may only be made by both entities together. The two entities should OTT together as a single option and register for VAT account for output tax as a single entity (usually a partnership even if it is not a partnership for any other purpose.).

Limited partnerships

Under the Limited Partnership Act 1907 every limited partnership must be registered with Companies House. A limited partnership is made up of one or more general partners, who have unlimited liability, and one or more ‘limited’ partners, who are not liable for debts and obligations of the firm. A limited partner is unable to take part in the management.

If there is only one general partner and one or more limited partners, the general partner is treated as a sole proprietor for VAT registration purposes. If there are two or more general partners and one or more limited partners, the general partners are treated as a partnership. It is the general partners who should OTT.

Limited liability partnerships (LLPs)

An LLP has separate legal status from its members and is able to enter into contracts in its own right. An LLP is a body corporate and is may register for VAT. If the partnership decides to OTT, one or more members, as the authorised signatory must sign the notification.

Authorised persons for particular legal entities 

In order for an OTT to be notified effectively, it must be signed and dated by an authorised person who possesses the legal capacity to notify a decision.

List of authorised signatories

Legal entity Authorised persons
Sole trader (proprietor) Owner of the business
Trust Trustee (or partner if VAT2 is completed)
Partnership (UK) Any partner (on VAT2)
Partnership (Scotland) Any partner
Limited partnership (UK) General partner
Limited partnership (Scotland) General partner
Limited Liability Partnership Designated member or member
Unincorporated Association Chairperson, treasurer, trustee or company secretary
Limited company Company director or company secretary
Community Interest Company (CIC) Company director or company secretary
Charitable Incorporated Organisation Director, chairperson, treasurer, trustee, or company secretary
Community Benefit Society Chairperson, treasurer, trustee or company secretary
Local Authority Section 151 officer (or Section 95 officer in Scotland), town clerk, head of finance, or treasurer
VAT group Director or company secretary of the group member that owns the property
Government department Nominated VAT liaison officer or finance manager (or a person senior to either)
Corporate body acting as a director, trustee or company secretary Any office holder or employee authorised by the corporate body (as long as the corporate body itself has authorisation from the owner the property)
Overseas entity Director or manager
Power of attorney Anyone granted a power of attorney to administer or manage the tax affairs of the owner of a property

Commentary

An invalid OTT may result in, among other things:

  • Input tax recovery being barred
  • A potential Transfer of a Going Concern (TOGC) becoming subject to VAT
  • VAT registration being denied
  • Unwanted complexity in transactions with the potential for a deal to be aborted
  • Costs in unwinding the VAT position (if firefighting is possible)
  • Uncertainty
  • Delays in transactions
  • A dispute between two sides to a transaction
  • Past input tax being the subject of clawback
  • The Capital Goods Scheme (CGS) being triggered resulting in VAT costs and complexity
  • HMRC levying penalties and interest

It is important to get the, seemingly simple, process of OTT right, and right first time!

VAT & Import Duty

By   26 August 2025
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HMRC has updated its Guidance on How to claim a repayment of import duty and VAT if you have overpaid

It sets out how to check time limits and how to claim for importers, agents, freight forwarders or express operators. It also explains how to use the Customs Declaration Service or form C285 as an individual.

It covers:

  • who can apply
  • when to apply
  • how to apply
  • what you need — Customs Declaration Service
  • apply online — Customs Declaration Service
  • what you will need — C285 form
  • apply online — C285 form
  • what happens after the application

VAT: HMRC launches new online interactive tool for compliance checks

By   19 August 2025
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HMRC has introduced a new interactive tool which aims to help taxpayers with compliance checks.

The new free online Interactive Compliance Guidance tool can help businesses understand HMRC compliance checks. It aims to provide information and support about compliance checks (VAT inspections).

The tool provides information to help taxpayers understand:

  • HMRC compliance checks
  • why HMRC has requested specific information or documents
  • how to request extra support due to health or personal circumstances
  • how to appoint someone to act on your behalf
  • what to do if you disagree with a decision made by HMRC
  • how to pay a tax assessment or penalty.

It brings together existing compliance guidance and videos in one place, making it easier to find and navigate the appropriate information.

More on VAT inspections – How do HMRC choose which businesses to visit and what is “Connect”? here.

VAT: Taxpayers’ trust in HMRC is falling

By   6 August 2025
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Recently published HM Treasury Minutes show that taxpayers’ trust in HMRC is falling. The Public Accounts Committee (PAC) recommended that HMRC should work with taxpayers and their representatives to understand why trust in HMRC is falling and what it can do to quickly address the decline. Furthermore, the PAC recommended that HMRC should publish the concerns it has heard and the actions it is taking to address these, as a first step to improving trust.

HMRC agreed and the recommendation has been implemented. So, what is the plan?

The Plan

HMRC says it recognises five drivers of customer trust, being perceptions of:

  • fairness
  • competence
  • transparency
  • reciprocity
  • prevalent social norms

HMRC uses its annual customer surveys (most recently 2024), complaints data, and focus groups to understand these perceptions in driving changes in the headline measures for different customer groups. HMRC say it places ‘great value’ on customer feedback.

Alongside good customer service, trust depends on ensuring a fair tax ecosystem by holding to account those that do not pay the correct amount of tax, in addition to other factors such as prevailing trust in government.

The aim is to continue improving levels of trust by being more supportive, creating a level playing field, and ensuring its services and processes are quicker, easier and help more customers to get their taxes right first time.

For example:

  • delivering sustained improvements in HMRC’s helpline services
  • improving digital services
  • updating guidance regarding tax avoidance schemes
  • consulting on ways to improve intermediary standards and the benefits good advisers bring to the tax system, counter those that promote avoidance
  • reforming the tax administration framework
  • making improvements to services for tax advisers, such as improving the Agents Dedicated Line and Services Account, building digital transactional services and web-chat for tax advisers, and introducing a pre-complaint resolution service

HMRC publishes the results of its annual surveys as well as a range of other customer feedback eg; via exercises like public consultation. The Exchequer Secretary has confirmed that HMRC will publish a Transformation Roadmap this summer, including the details of digital services that will mean a better experience for taxpayers.

We await signs that HMRC’s services are improving and whether that lost trust can be returned. We have significant doubts, but remain open minded. 

Changes to VAT Notice 700/1 – Voluntary registration

By   1 August 2025
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I have written about the pros and cons of voluntary registration here. HMRC has now updated Notice 700/1 – Who should register for VAT. The main changes are in respect of voluntary registration and the effective date of registration (EDR) and the impact on a business in selecting the date. Furthermore, information on pre-registration activities has been updated .

 

 

 A VAT Did you know?

By   22 July 2025
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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: 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 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.

VAT: Input tax incurred on the management of pension funds

By   1 July 2025
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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..