Tag Archives: tribunal

VAT: Composite or separate supplies – The A & D McFarlane case

By   10 March 2026
0

Latest from the courts

Yet more on composite or separate supplies. As a background to the issue please see previous relevant cases here here here and here. This is the latest the seemingly endless and conflicting series of cases on whether certain supplies are multiple or single. 

In the First-Tier Tribunal case (FTT) of Alan and Diane McFarland the appellants operated a ‘bed and breakfast’ for other people’s cattle.

The issue

The VAT issue was whether there were separate supplies:

  • zero-rated supply of animal food
  • exempt supply of land.

Additionally, the appellant contended that the supply of animal food was a principal supply, and everything else, including the land, was ancillary. 

HMRC took the view that there was a single taxable supply of ‘animal care’ and not separate supplies of exempt stabling and zero-rated feed. It also rejected the claim that the appellant had an exclusive right of occupation over any defined area, noting that there was no agreement conferring such a right with the consequence that this could not be an exempt supply. On the zero-rated animal foodstuffs point; HMRC concluded that the supplies do not qualify for zero-rating as the food provided formed part of the overall service of animal husbandry.

Legislation

  • Exemption: right over land or any licence to occupy land – The VAT Act 1994, Schedule 9, Group 1,  item 1
  • Zero-rating: animal feeding stuffs – The VAT Act 1994, Schedule 8, Group 1, Item 2.

Decision

The FTT found that there was a single standard rated supply of ‘looking after’ cattle. The supply made by the appellant fell squarely within the Levob (Levob Verzekeringen BV [C-41/04]) category, being so closely linked that they form, objectively, a single, indivisible economic supply, which it would be artificial to split. – HMRC notes on Levob here.

The supply was a fully integrated package of services directed towards the rearing and finishing of cattle. This included: daily mixing and provision of feed, management of water and housing, maintenance of handling facilities, statutory record‑keeping, and disease‑control obligations. These activities were inseparable in practice and indispensable for the operation of the recipient’s cattle‑finishing business. Neither the accommodation nor the feed, nor any other individual component, was offered or taken independently. There was a single price for the complete service. There was also a single invoice and a single description of the supply on the invoice. There was no indication on the invoice that both exempt and zero-rated services were being supplied.

The appellant provided a single composite service of animal rearing and management, to which all elements, including accommodation and feed, were merely constituent elements.

The Tribunal also dismissed the alternative argument of the that the supply of food was the principal supply, with all other elements, including accommodation and the wider activities being merely ancillary. The provision of food was not an aim in itself. The food could not sensibly be separated from the accommodation, handling, record-keeping and welfare-related functions that were also performed. It was, therefore, not the principal supply but an integrated component of the single composite supply.

The appeal was consequently dismissed.

Commentary

Yet another case on the perennial composite/single supply issue. This case was relatively straightforward and the outcome was no surprise. It is essential that businesses that potentially deal with agent/principal matters or make supplies at different VAT rates consider their position. Contracts, other documentation and the commercial reality need to be considered. We recommend that in such circumstances a review is carried out specifically to establish the correct VAT position .

Charging EVs at public stations is at 5% VAT – The Charge My Street case

By   10 March 2026
0

Latest from the courts

Reduced VAT rate for public EV charging

In the First-tier Tribunal (FTT) case of Charge My Street Limited (CMS) the issue was whether the supply of electric vehicle (EV) charging in public places qualified for the reduced rate of VAT – 5%.

The appellant contended that the reduced rate applied to its supplies because they were provided at a premises and were below the de minimis – 1000 kilowatt hours (kWh) a month applicable to domestic use of electricity.

HMRC formed the view that these supplies were standard rated at 20% on the basis that what was being provided was not for ‘domestic use’. Furthermore, the de minimis was breached because the supply should be calculated by reference only to the period during which the electricity was actually being provided, rather than to a specific person at any premises in a month.

Legislation

The relevant legislation is found at The VAT Act 1994, Schedule 7A, Group 1, Item 1, Note 5(g),

Decision

The FTT found that ‘premises’ for this purpose did not require any concept of legal ownership by the recipient of the electricity, nor was it confined to buildings, but could include defined public spaces, such as car parks. The judge also accepted CMS’s argument that the de minimis limit is measured in terms of how much electricity is provided by a supplier to a person at any premises in the relevant month. It was accepted that public EV charging would always be under the 1000 kWh limit.

The FTT allowed appellant’s appeal in principle.

VAT: Partial exemption input tax attribution. The Littlewoods case

By   13 January 2026
0
Latest from the courts
 
In the Littlewoods Limited First-tier Tribunal (FTT) case the issue was the ability to recover input tax incurred on photography costs.
Background
Littlewoods used photographers for the creation of product specific photographs for use in catalogues and in connection with its online retail store. It made claims to recover this input tax, but HMRC refused a full refund. This appeal was against that decision.
The appellant is partly exempt. It makes taxable sales of goods and also makes exempt supplies of finance and insurance. This means that it is unable to recover all input tax it incurs.
Contentions
 
The appellant argued that the photography costs were directly attributable to the sale of the products photographed and was consequently fully recoverable.
HMRC contended that not all of the VAT was claimable because an element was referable to the exempt supplies (ie: the input tax was incurred to support both the online taxable sale of goods and of exempt finance). Therefore, an apportionment was required.
Decision
 
The appeal was allowed.
 
The Tribunal considered that each use made of the photographs to be exclusively in the making of taxable supplies of retail goods. Any link to credit or insurance was, in its view, at the most, indirect but, given the nature of the costs, probably non-existent. Consequently, the photography did not promote any finance or insurance products so that no restriction of the input tax claims was required.
Commentary
Yet another case on input tax attribution. As someone once said; partial exemption is more of an art than a science…
The judge distinguished this appeal from the N Brown case as the circumstances were different and that the court applied the wrong legal test in terms of the micro/macro level of business per the Royal Opera House case.

VAT treatment of the supply of locum doctors

By   16 December 2025
0

HMRC has issued Revenue and Customs brief 9 (2025)  which covers the VAT liability of the supply of temporary medical staff (locum doctors).

This change to HMRC’s previous view (that these supplies were taxable) is a consequence of the First-Tier Tribunal’s decision in Isle of Wight NHS Trust case which ruled in favour of the Trust, finding that the supply of locums is an exempt service. 

The Brief also provides guidance for businesses who wish to claim a refund of overdeclared output tax following the decision.

Who can claim import VAT? The TSI Instruments case

By   5 November 2025
0

Latest from the courts

In the First-tier Tribunal (FTT) case of TSI Instruments Limited the issue was whether the appellant could claim import VAT when it was not the owner of the imported goods. The amount of VAT at stake was circa £8.5 million.

Background

TSI Instruments (TSI) imported scientific equipment owned by its customers for repair. The main activity of TSI in the UK is the service, repair and calibration of TSI Group goods which had previously been sold to customers around the world.

TSI is named as the importer and paid the charges made by the shipping company for dealing with the declaration and customs clearance formalities on behalf of TSI as well as paying the import VAT which it claimed.

Contentions

HMRC refused to repay the claims on the basis that only the entity with title to the goods is able to deduct the import VAT.

The appellant argued there is no requirement in the legislation that the importer should be the owner of the goods in order for import VAT to be credited. TSI asserted that, as long as the goods are imported for the purposes of its taxable business and it bears the costs of the import, the import VAT can be credited as input tax.

Decision

The FTT ruled that TSI was not entitled to claim input VAT credit for import VAT paid on goods it did not own, and the appeal was dismissed. Via both EU and UK VAT law, the right to deduct import VAT is restricted to the actual owner of the goods or the entity which has the right to dispose of the goods as their owner (or where the cost or value of the goods is reflected in the price of specific output transactions or in the price of goods and services supplied in the course of their economic activities). Since TSI did not own the goods, and their value was not included in the repair service price, the FTT ruled against TSI.

Commentary

This position could have been avoided by planning being put in place. TSI could have used Inward Processing Relief or the owner of the goods could have been the importer.

Legislation/HMRC guidance

VIT13300 – Import VAT may only be claimed by the owner of the goods who would be entitled to reclaim the import VAT either in accordance with s24 VATA 1994 (if registered for VAT in the UK) or under part XXI of the VAT Regulations 1995 (SI 1995/2518) if they are not registered for VAT in the UK, provided they satisfy the legislative conditions. For further information see Notice 723A.

HMRC published Revenue and Customs Briefs 2 (2019) and Brief 15 (2020) which restated HMRC’s long-standing policy that it is the owner of the imported goods who is entitled to recover the import VAT under current UK legislation. These Briefs clarify, but do not change, HMRC’s policy.

VAT: Overages – new guidance

By   6 October 2025
0

HMRC has issued new internal guidance on overages.

Land and property transactions are often complex and high value for VAT purposes. One area which we have been increasingly involved with is overages.

What is an overage?

An overage is an agreement whereby a purchaser of land agrees to pay the vendor an additional sum of money, in addition to the purchase price, following the occurrence of a future specified event that enhances the value of the land. This entitles the seller to a proportion of the enhanced value following the initial sale. Overages may also be called clawbacks, or uplifts.

Overages are popular with landowners who sell with the benefit of development potential and with buyers who may be able to purchase land at an initial low price with a condition that further payment will be made contingent on land increasing in value in the future – this may be as a result, of, say, obtaining Planning Permission.

VAT Treatment

HMRC consider that the VAT liability of overage should be considered separately from the VAT liability of the initial sale. HMRC’s policy is that the VAT liability of an overage payment will generally be determined at the time of supply of the overage payment, rather than when the original land sale completed.

Overage payments where an option to tax is made after the initial grant – where an option to tax is made after the property has been sold to the buyer, any subsequent overage payment may be liable to the standard rate of VAT as a result of VAT Act 1994, Schedule 10, Paragraph 31 (unless the option to tax has been disapplied, eg; where a property intended for use as a dwelling). In such situations, where the overage payment is made after the dwellings are constructed on the land, and the original grant was taxable by virtue of the option to tax, the option can be excluded in relation to the overage payment.

New commercial buildings – overage payments:

  • Where there is a grant of a freehold interest in a new (or incomplete) commercial building, the overage will always be taxable at the standard rate – it does not become exempt simply because three years or more have elapsed since the building was completed. This will remain the position if the overage falls due after the designation ‘new’ has expired after three years.  
  • Where there has been a freehold sale of bare, un-opted land subject to an overage obligation, the liability of the overage payment will remain exempt even if a new commercial building is constructed on the site before the overage is paid. 

This means that the VAT liability of the overage is determined by reference to the description of the land at the time that the original sale of the land takes place. 

More on overages here. This covers HMRC’s previous views on overages .

VAT: Can Nitrous Oxide be zero-rated food? The Telamara case – no laughing matter

By   1 October 2025
0

Latest from the courts

In the First-Tier tribunal (FTT) case of Telamara Limited the issue was whether Nitrous Oxide (N₂O) used exclusively for culinary use can be zero-rated.

Background

The appellant supplied N₂O canisters which were used as cream chargers. These were used for whipping cream and creating foams and mousses, and to infuse liquids. The relevant invoices described the product as; “Dairy products misc. Cream/beverage infusers 600 x 8g cylinder”. The chargers were not for medical use. The chargers were certified as Halal products.

Telamara’s customers were wholesalers and the units in which the chargers were sold were in boxes of 600. The packaging states that the contents of the chargers should not be inhaled. If consumed on its own N₂O is tasteless and all but imperceptible and its only effect is on the consistency of the whipped food.

The contentions

Telamara considered that the sale of the canisters should be zero-rated because they were for culinary use as food of a kind for human consumption via The VAT Act 1994, Schedule 8 VAT Act 1994, Group 1, Item 1. It was accepted that the N₂O would not be “eaten on its own” but it nevertheless was said to form an ingredient of all of the food substances into which it was incorporated by infusion or by use of the cream whipper, changing the state and nature of those foods. Furthermore, the appellant claimed unfairness because HMRC had been unable to provide clear guidance on the correct VAT treatment when the business started but HMRC subsequently became certain the supplies were standard rated.

Unsurprisingly, HMRC disagreed, formed a view that the supplies were not of food, and raised an assessment for the output tax it deemed to be due on the standard rated supplies.

Decision

The appeal was dismissed. It was found that the chargers were not food because N₂O:

  • had no nutritional value
  • is a food additive, not food
  • does not add to the calories of food
  • is odourless, colourless, and tasteless
  • is a gas and therefore incapable of being either eaten or drunk

The Tribunal concluded that the gases were standard rated as they were not food of a kind used for human consumption. It concluded that no informed and broad-minded person considering whether the gases were food would conclude that they were.

Commentary

Yet another “Is it food?” case adding to a long list. The Tribunal helpfully set out (drawing from an extensive and thorough review of the very many cases which have considered the scope of zero-rating of food) the required exercise considering and weighing up the following factors to answer the question of whether something is food:

(1) Nutritional value

(2) Palatability

(3) Form of the product

(4) Manner of/directions for consumption

(5) Frequency of consumption

(6) Marketing

(7) Purpose of the product

(8) Range of uses

(9) Constituent ingredients

(10) Dictionary definition of food

Summary

Is it food? is not as a straightforward question as it may seem!

We recommend that any business which is involved in ‘food” or “food-like” products should undertake a review in light of this case. We can, of course, help with this .

VAT: The United Carpets case – single of multiple supplies?

By   5 August 2025
0

Latest from the courts

Yet more on composite or separate supplies. As a background to the issue please see previous relevant cases here here here and here. This is the latest the seemingly endless and conflicting series of cases on whether certain supplies are multiple or single. 

In the First-Tier Tribunal case (FTT) of United Carpets (Franchisor) Limited (UC) the issue was whether the appellant made a single supply of flooring and fitting or whether there were two separate supplies

Background

UC is a retailer of flooring (including carpets, underlay, vinyl and wood flooring), as well as beds. A customer who purchased flooring from the appellant was given the option to have an independent, self-employed, fitter to carry out the fitting of the purchased flooring. Each store has a pool of fitters who take on fitting work referred to them by the appellant. If the customer chooses, the fitter will attend the customer’s home to fit the flooring, as directed by the customer. The fitter is then paid by the customer for that work, with the money being received and retained, in full, by the fitter.

The fitters are self-employed and they use their own tools, and drive their own vehicles. They also have their own public liability insurance and are not covered by any of the appellant’s insurance policies. They are not paid by the UC and are not on the UC’s payroll. Since they are self-employed, the fitters have no ongoing obligations to the appellant (or vice versa) and can take on referrals as they please. The appellant does not hold any formal records for the fitters and is not aware of how much the fitters earn by way of the referrals. The rates charged by the fitters are determined by the fitters themselves.

The appellant’s Terms and Conditions of Sale included the following statements:

“The carpet fitting and delivery services provided by the Installer are supplied under a separate contract from the supply of goods to the Customer by the Company (UC). The Company is not responsible for the delivery or fitting of the Goods to the Customer.

“Full payment for the fitting services is due upon fitting payable by cash or cheque directly to the Installer. As detailed on the invoice, payment for the carpet fitting is made directly to the Installer under a separate contractual agreement between the Customer and the Installer…”

The issue

Whether the supplies of fitting services made to customers following the referral to the fitter by UC were supplies made by the self-employed carpet fitters who performed the services, or by UC as a single supply of flooring and fitting such that output tax was due from UC on both the retail sales and the fitting fees.

Contentions

HMRC determined that the appellant had incorrectly treated the supply of carpet fitting and contended that it supplied fitting services via sub-contractors and assessed the appellant for output tax on the fitting fees. HMRC further contend that the appellant made those supplies as part of a single supply, comprising both the flooring and the fitting services. Assessments were raised to recover the deemed underdeclared output tax.

UC’s position is that the self-employed fitters were completely independent, and that the fitting services do not form a single supply. Consequently, VAT was only due on the retail sales and not the fitting income.

Decision

The FTT concluded that there were two separate supplies:

  • the supply of goods by UC to the customer, and
  • the supply of services by the fitter to the customer.

After a review of the contractual documentation and the economic and commercial reality, the court was satisfied that there were three agreements:

  • between UC and the customer
  • between UC and the fitter
  • between the fitter and the customer

The fitter provided services to the end consumer who was liable to pay the fitter.

Consequently, the appeal was allowed, and the assessments were set aside.

A significant amount of case law was cited (a list too long to reproduce here) but included were the cases of: Secret Hotels 2 Limited v HMRC; All Answers Ltd v HMRC and Tolsma v Inspecteur der Omzetbelasting Leeuwarden which were considered and applied.

Commentary

Yet another case on the perennial composite/single supply issue. This case was more straightforward than many on this subject and the outcome was no surprise. It is essential that businesses that potentially deal with agent/principal matters or make supplies at different VAT rates consider their position. Both contracts, other documentation and the commercial reality need to be considered. We recommend that in such circumstances a review is carried out specifically to establish the proper VAT position .

VAT: Input tax incurred on the management of pension funds

By   1 July 2025
0

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..

VAT: Are poppadoms crisps? The Walkers Snack Foods case

By   4 June 2025
0

Latest from the courts  

In the Walkers Snack Foods Ltd Upper Tribunal (UT) case the issue was whether Sensations Poppadoms are similar to potato crisps and consequently excluded from the zero rating for food.

The First-Tier Tribunal (FTT) found that the product was similar to crisps and that it was to be treated as being excepted items from zero-rating and was therefore standard rated.

Background

The salient matter was whether the poppadoms were “made from the potato, or from potato flour, or from potato starch” and were “similar” to potato crisps via The VAT Act 1994, Schedule 8, Group 1, item 1, excepted item 5.

Value Added Tax – excepted item 5 to item 1, Group 1, Part II, Schedule 8 Value Added Tax Act 1994 – whether First-tier Tribunal erred in law in finding Sensations Poppadoms were “made from the potato, or from potato flour, or from potato starch” and were “similar” to potato crisps

This sets out that the following is excepted from the zero rate for “Food of a kind used for human consumption”.

“5. Any of the following when packaged for human consumption without further preparation, namely, potato crisps, potato sticks, potato puffs, and similar products made from the potato, or from potato flour, or from potato starch, and savoury food products obtained by the swelling of cereals or cereal products; and salted or roasted nuts other than nuts in shell.”

Contentions

The appellant argued that the poppadoms should be zero-rated for VAT purposes because they fall within Item 1 of Group 1 as they are food, and that they are not included in the list of exceptions.

 HMRC contended that that the product fell within excepted item 5 of Group 1, because they are products similar to potato crisps…

Decision 

  • The UT agreed with the FTT that the words “made from the potato” can extend to products made from potato granules and was neither untenable nor a plain misapplication of the law to the facts. 
  • The UT recalled that the FTT had concluded that Sensations Poppadoms contained “more than enough potato content” for it to be reasonable to conclude that they were “made from the potato… or from potato starch”. Sensations Poppadoms have a combined potato content (potato granules and potato starch) of 39%-40%, so the potato content is significant. The question for the UT was whether the FTT reached a conclusion which no reasonable tribunal properly construing the statute could have reached. The UT answered “no”.
  • The UT noted that the FTT determined that Sensations Poppadoms were similar to potato crisps based on a multifactorial assessment of various factors, including; packaging, appearance, texture and taste. The FTT noted that while the manufacturing processes differ, the statute allows for similarity among products made from potato starch and flour. The FTT found that the potato content in Sensations Poppadoms contributed to a neutral flavour, which did not significantly distinguish them from potato crisps. Broadly, the UT agreed with this determination.

Consequently, for the above reasons the UT dismissed the appeal and the product is subject to the standard rate.

Commentary

Yet another case on the liability of ‘snack foods’. So now we know that: Doritos, Monster Munch, Wotsits and Poppadums are standard rated, however Pringles, Skips and Twiglets are VAT free. This demonstrates the complexity of classifying food and these decisions throw up more complications for producers as this market develops quickly as the public’s taste moves on.