Tag Archives: vat-claim

VAT and pension scheme services

By Marcus Ward 8 June 2026

In Revenue and Customs Brief 4 (2025) of June last year HMRC announced that employers can now reclaim all VAT incurred on investment costs linked to pension funds (they no longer need to split the costs with pension trustees). If trustees are providing pension fund management services and charging the employer, they can also claim back VAT on their costs, if they are VAT-registered.

HMRC have now updated its internal guidance on such input tax recovery. According to the new guidance, HMRC now consider for full recovery of VAT charged on any scheme-related service, sponsoring employers must have directly contracted for that service and HMRC no longer recognise any distinction between administration and investment services.

A VAT Did you know?

By Marcus Ward 27 May 2026

Salted nuts are standard rated, but packets of nuts which are still in their shells are VAT free.

VAT Success Stories

By Marcus Ward 26 May 2026

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.

Restaurant

We identified and submitted a claim for a West End restaurant for nearly £200,000 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: Bad Debt Relief – A guide

By Marcus Ward 19 May 2026

VAT Basics

Bad Debt Relief (BDR)

We understand that businesses and consumers are likely to fall into default in increasing numbers if the economy continues to worsen and it is anticipated that the ability to settle of debts on time will significantly decrease. It is apparent that many debts will never be settled. Consequently, it appears timely to look at the available VAT relief.

The VAT position

VAT registered businesses usually account for tax on an accruals basis (but see CAS) and will therefore be required to account for output tax in the same VAT period as an invoice is issued to a customer. If that invoice is not paid and a bad debt arises this would mean that tax has been accounted for on a payment which has not been received.

Relief

Anything which can relieve the burden of VAT is to be welcomed, especially in such trying times. So VAT Bad Debt Relief (BDR) is a useful tool if a business is aware of it and understand when it may be claimed.

It is at the very least frustrating when a client does not pay, and in some cases this situation can lead to the end of a business. At least the VAT charged to the client should not become a cost to a supplier. The BDR mechanism goes some way to protect a business from payment defaulters.

There is a relief however, as normal with tax, there are specific conditions:

Conditions for claiming BDR

The supplier must have supplied goods or services for a consideration in money and must have accounted for and paid VAT on the supply. All or part of the consideration must have been written off as a bad debt by making the appropriate entry in the business’ records (this does not have to be a “formal” procedure and need not be notified to the customer). At least six months (but not more than four years and six months) must have elapsed since the later of the date of supply or the due date for payment.

Records required

Various records and evidence must be kept (for four years from the date of claim), in particular to identify:

the time and nature of the supply, the purchaser, and the consideration
the amount of VAT chargeable on the supply
the accounting period when this VAT was accounted for and paid to HMRC
any payment received for the supply
entries in the refund for bad debts account
the accounting period in which the claim is made

Procedure for claiming BDR

This part is straightforward: The claim is made by including the amount of the refund in Box 4 of the VAT Return for the period in which the debt becomes over six months old. The amount of BDR is either set-off against output tax due, or may create a refund position with HMRC.

Repayment of refund

Repayment of VAT refunded is required where payment is subsequently received or where the above conditions have not been complied with.

Adjustment of input tax for the debtor

Businesses are required to monitor the time they take to pay their suppliers and repay input tax claimed if they have not paid the supplier within six months. Subsequent payment of all or part of the debt will allow a corresponding reclaim of input tax. This is an easy assessment for HMRC to make at inspections, so businesses should make reviewing this matter this a regular exercise.

Finally, there is tax point planning available to defer a tax point until payment is received for providers of continuous supplies of services. Please see here

More on general VAT payment problems here.

The penalty regime…the dark side of VAT

By Marcus Ward 29 April 2026

VAT Penalties

I have made a lot of references to penalties in other articles over the years. So I thought it would be a good idea to have a closer look; what are they, when are they levied, rights of appeal, and importantly how much could they cost if a business gets it wrong?

Overview

Broadly, a penalty is levied if the incorrect amount of VAT is declared, either by understating output tax due, or overclaiming input tax, or accepting an assessment which is known to be too low.

Amount of penalty

HMRC detail three categories of inaccuracy. These are significant, as each has its own range of penalty percentages. If an error is found to fall within a lower band, then a lower penalty rate will apply. Where the taxpayer has taken ‘reasonable care,’ even though an error has been made, then no penalty will apply.

An error, when reasonable care not taken: 30%;
An error which is deliberate, but not concealed: 70%;
An error, which is deliberate and concealed: 100%.

Reasonable care

There is no definition of ‘reasonable care’. However, HMRC have said that they would not expect the same level of knowledge or expertise from a self-employed person, as from a large multi-national.

HMRC expect that, where an issue is unclear, advice is sought, and a record maintained of that advice. They also expect that, where an error is made, it is adjusted, and HMRC notified promptly. They have specifically stated that merely to adjust a return will not constitute a full disclosure of an error. Therefore, a penalty may still be applicable.

Notification

Further, where there is an ‘unprompted disclosure’ of the error, HMRC have power to reduce the penalty further. This measure is designed to encourage businesses to review their own VAT returns.

A disclosure is unprompted if it is made at a time when a person had no reason to believe that HMRC have discovered or are about to discover the inaccuracy. The disclosure will be treated as unprompted even if at the time it is made, the full extent of the error is not known, as long as fuller details are provided within a reasonable time.

What the penalty is based on

The amount of the penalty is calculated by applying the appropriate penalty rate (above) to the ‘Potential Lost Revenue’ or PLR. This is essentially the additional amount of VAT due or payable, as a result of the inaccuracy, or the failure to notify an under-assessment. Special rules apply where there are a number of errors, and they fall into different penalty bands.

Defending a penalty

The percentage penalty may be reduced by a range of ‘defences:’

– Telling; this includes admitting the document was inaccurate, or that there was an under-assessment, disclosing the inaccuracy in full, and explaining how and why the inaccuracies arose;

– Helping; this includes giving reasonable help in quantifying the inaccuracy, giving positive assistance rather than passive acceptance, actively engaging in work required to quantify the inaccuracy, and volunteering any relevant information;

– Giving Access; this includes providing documents, granting requests for information, allowing access to records and other documents.

HMRC have included a provision whereby a penalty can be suspended for up to two years. This will occur for a careless inaccuracy, not a deliberate inaccuracy. HMRC will consider suspension of a penalty where, given the imposition of certain conditions, the business will improve its accuracy. The aim is to improve future compliance and encourage businesses which genuinely seek to fulfil their obligations.

Appealing a penalty

HMRC have an internal reconsideration procedure, where a business should apply to in the first instance. If the outcome is not satisfactory, the business can pursue an appeal to the First Tier Tribunal. A business can appeal on the grounds of; whether a penalty is applicable, the amount of the penalty, a decision not to suspend a penalty, and the conditions for suspension.

The normal time limit for penalties to four years. Additionally, where there is deliberate action to evade VAT, a 20 year limit applies. In particular, this applies to a loss of VAT which arises as a result of a deliberate inaccuracy in a document submitted by that person.

These are just the penalties for making “errors” on VAT returns. HMRC have plenty more for anything from late registration to issuing the wrong paperwork.

Even darker

There are even more severe penalties for deliberate acts, including significant terms of imprisonment. That is the subject of another article.

Assistance

My advice is always to check on all aspects of a penalty and seek assistance for grounds to challenge a decision to levy a penalty. We have a very high success rate in defending businesses against inappropriate penalties. It is always worth running a penalty past us.

New VAT Road Fuel Scale Charges from 1 May 2026

By Marcus Ward 21 April 2026

HMRC has published new VAT Road Fuel Scale Charges (RFSC) which apply from 1 May 2026 to 30 April 2027.

These provide details on the charges from 1 May 2026 to be used on a business’ VAT return and must be used from the start of the next prescribed accounting period beginning on or after 1 May 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.

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.

HMRC Updates on VAT appeals

By Marcus Ward 20 April 2026

HMRC has updated its list of VAT appeals, which sets out the status of HMRC appeals and recent cases which they consider have potential implications for other taxpayers.

This is a list of VAT appeals that HMRC has lost, or partly lost, that could have implications for other businesses.

The list is updated regularly and details of finalised cases are retained for six months.

VAT and charities – updated guidance

By Marcus Ward 13 April 2026

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.

VAT: Crowdfunding – What is taxable?

By Marcus Ward 9 April 2026

What is crowdfunding?

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.

A VAT did you know?

By Marcus Ward 30 March 2026

Around 50% of businesses do not recover VAT incurred overseas and there is an estimated $5 billion not reclaimed each year.