Category Archives: Law

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.

Weird things that have been taxed…

By   8 April 2025
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Things that have been taxed in the past

Revenue raising knows no bounds. Here are some things which have had their own specific tax. It is interesting to note that some taxation was intended to change behaviour, and some a result of stopping people’s indulgence. A brief view of what and where particular things were taxed:

Beards – Russia

Windows – UK

Body piercings – Arkansas US

Bricks UK

Salt – France

Champagne – Germany

Hats – UK

Candles – UK

Cow flatulence – Denmark

Playing Cards and dice – UK

Bagels (but not bread) – New York US

Fireplaces – UK

Tattoos – Arkansas US

Soap – UK

Illegal Drugs – Tennessee US

Google – France

Wig powder – UK

Unapproved baby names – Sweden

Not smoking cigarettes – China

Urine – Ancient Rome

Tethered hot air balloons – Kansas US

Cowardice – Knights could opt out fighting in wars by paying a tax called scutage – UK

Car Accidents – Missouri US

Political opponents’ land – Oliver Cromwell UK

Patterned wallpaper (but not plain white) – UK

Litigation – Tennessee US

Slave freedom – Ancient Rome

Modesty – women were not allowed to cover their breasts, and were taxed if they did – India

Belt buckles – Texas US

Robots – South Korea

Men not being married – Missouri US

Knowledge – UK

Clocks – UK

So now you know!

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:

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 Domestic Reverse Charge procedure Notice updated

By   4 March 2025
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The Notice sets out how the Domestic Reverse Charge (DRC) makes supplies of standard or reduced rated construction services between construction or building businesses subject to the charge. This means that the recipient of the supply will be liable to account for VAT due, instead of the supplier. Consequently, the customer in the construction industry receiving the supply of construction services will be required to pay the VAT directly to HMRC rather than paying it to the supplier. It will be able to reclaim this VAT subject to the normal VAT rules. The DRC will apply throughout the supply chain up to the point where the customer receiving the supply is no longer a business that makes supplies of construction services (a so-called end user).

 

The supplies to which the DRC applies are set out here

The update includes information on recipients of DRC supplies that are not VAT registered. Broadly; if a business buys specified goods or services, it may make it liable to VAT registered on the strength of the value of the DRC. 

A VAT Did you know?

By   26 February 2025
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Under one VAT scheme, zero-rated and exempt supplies are subject to VAT – as are those which are “Outside the scope of UK VAT”.

Which, or course, makes entire sense.

VAT: When is a bar a bar? – The Anglia Ruskin Students’ Union case

By   17 February 2025
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Latest from the courts

A student union tried to argue that a bar is not a bar. It did not go well.

In the case of The Anglia Ruskin Students’ Union the High Court considered the appellant’s application for judicial review of HMRC’s decision that “92” which was operated on the university’s campus was a bar.

The importance of this description of the venue was that if it was indeed a bar, the supplies from it would be standard rated. This is because the supplies of catering to students by eligible bodies, including universities”, are exempt from VAT, on the basis that the supplies are closely related to exempt supplies of education, however, the exemption does not cover food and drink sold in bars.

The union contended that ‘bar’ means a place that does not supply catering, or, alternatively, predominantly or mainly serves alcohol.

HMRC, predictably argued that a bar is “somewhere where one can buy and drink alcoholic and other drinks, as well as food”, and that 92 met that definition.

The court agreed with HMRC that the bar was indeed a bar and did not grant permission to appeal.

So, now we know, a bar is a bar, not a café… or anything else really.

Technical

* Student unions often provide catering alongside universities. Since March 2002, HMRC has operated a published concession extending the exemption granted to supplies of catering made by universities to student unions.

VAT: e-invoicing consultation published

By   13 February 2025
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HMRC and the Department for Business and Trade have published their UK e-invoicing consultation paper.

Background to this development here and here.

E-invoicing is the digital exchange of invoice information directly between buyers’ and suppliers’ financial systems, even if these systems are different. The outcome is an invoice which is automatically written into the buyer’s financial system without manual processing.

E-invoicing automates the exchange of invoices between buyers and suppliers. The government says that increased e-invoicing uptake may support economic growth, business productivity, improve business cashflow and reduce errors in tax returns. It has the potential to both support businesses and tax administration.

The consultation aims to understand how e-invoicing aligns with businesses and their customers. Responses from businesses of all sizes – whether they use e-invoicing or not – as well as interest groups, representative bodies, industry bodies and individuals are encouraged.

The purpose of the consultation is to seek input on how the government can support the increased adoption of e-invoicing. The main points are:

  • different models of e-invoicing
  • whether to take a mandated or voluntary approach to e-invoicing
  • what scope of mandate might be most appropriate in the UK and for businesses
  • whether e-invoicing should be complemented by real time digital reporting

This would be a significant change to VAT and all businesses should understand the impact.

More on VAT in the Digital Age (ViDA), including Real-time digital reporting here.

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