Deeks VAT News Issue 29    

Welcome to the latest edition of Deeks VAT News.     December 2022 – Issue 29   Keeping you up to date on VAT changes    In this 2nd edition of the months newsletter we cover the following:   A VAT Did you know?  Chocolate body paint is zero rated, but a bar of chocolate is standard rated.  TOGC […]

Welcome to the latest edition of Deeks VAT News.    

December 2022 – Issue 29  

Keeping you up to date on VAT changes   

In this 2nd edition of the months newsletter we cover the following:  

A VAT Did you know? 

Chocolate body paint is zero rated, but a bar of chocolate is standard rated. 

TOGC and deliberate errors – The Apollinaire case 

Latest from the courts 

In the First -Tier Tribunal (FTT) case of Apollinaire Ltd and Mr Z H Hashmi the issues were: 

  • whether the appellant’s input tax claim was valid 
  • were the director’s actions “deliberate”? 
  • was a Personal Liability Notice (PLN) appropriate? 


Mr Hashmi (the sole director of Apollinaire) asserted that he sold his business, Snow Whyte Limited to a Mr Singh as a going concern, together with the trading name “Benny Hamish”. The purchase price was never paid.  He alleged that Mr Singh traded for approximately one month and then sold stock worth £573,756 to Apollinaire. The appellant submitted an input tax claim for the purchase of the goods. HMRC refused to make the repayment and raised penalties for deliberate errors. HMRC subsequently issued a PLN to Mr Hashmi. 


Initially HMRC stated that Mr Singh may not have existed, that there was no sale of Snow Whyte Ltd by Mr Hashmi to Mr Singh and similarly, no sale back to Mr Hashmi. However, this submission was later amended to argue that Mr Hashmi controlled the movement of the stock at all times and that the issue was whether the transfer of stock from Snow Whyte Limited was a Transfer Of a Going Concern (TOGC), whether or not Mr Singh existed. 

Mr Hashmi appealed, contending that the transactions took place as described to HMRC. 


Unsurprisingly, given Mr Hashmi’s previous history of dissolving companies, but continuing to trade under the same name as those companies (listed at para 14 of the decision) and failing to submit returns and payments, the FTT accepted HMRC’s version of events. Further, there was insufficient evidence to support the transactions (if they took place) and the judge fund that the appellant’s evidence was not credible. If the events did take place, there was no input tax to claim as all the tests (where relevant here) for a TOGC (Value Added Tax (Special Provisions) Order 1995, Regulation 5) were met: 

  • the assets were sold as a business as a going concern 
  • the assets were used by the transferee in carrying on the same kind of business 
  • there was no break in trading 
  • both entities traded under the same name 
  • both entities operated from the same premises 
  • both entities had the same employees and tills 

The appeal was dismissed. 


The FTT further decided that HMRC’s penalties and PLN [Finance Act 2007, Schedule 24, 19(1)] were appropriate. The claim for input tax was deliberately overstated and that Mr Hashmi was the controlling mind of both entities and was personally liable as the sole company director of Apollinaire. 

HMRC relied on case law: Clynes v Revenue and Customs[2016] UKFTT 369 (TC) which reads as follows: 

“On its normal meaning, the use of the term indicates that for there to be a deliberate inaccuracy on a person’s part, the person must have acted consciously, with full intention or set purpose or in a considered way… 

…Our view is that, depending on the circumstances, an inaccuracy may also be held to be deliberate where it is found that the person consciously or intentionally chose not to find out the correct position, in particular, where the circumstances are such that the person knew he should do so.”  


This case is a reverse of the usual TOGC disputes as HMRC sought to establish that there was no taxable supply so no VAT was due. It underlines that: 

  • care should always be taken with applying TOGC treatment (or appreciating the results of failing to recognise a TOGC) 
  • penalties for deliberate errors can be significant and swingeing 
  • directors can, and are, held personally responsible for actions taken by a company 


Museums and galleries – update 

Museums and galleries which offer free admission to the public may be eligible for refunds of VAT under the Museums and Galleries VAT Refund Scheme. Eligible bodies are listed Value Added Tax (Refund of Tax to Museums and Galleries) Order 2001. This list published as an annex to VAT Notice 998. This list has been updated. 

HMRC has announced that the scheme has now reopened for eligible museums and galleries. The closing date for this round of applications has been extended to 5pm Wednesday 1 March 2023

To be considered for inclusion in the scheme museums or galleries must: 

  • be open to the general public for at least 30 hours per week, without exception 
  • offer free entry, without prior appointment 
  • hold collections in a purpose-built building 
  • display details of free entry and opening hours on the museum or gallery website 


Museums and galleries offering free access are not regarded as being engaged in any business in relation to this activity. They may, of course, have other activities that in their own right are business activities, for example, catering, sales of books and gifts and exhibitions for which there is a charge. 

Via the usual VAT rules, it is not possible to recover the VAT incurred on goods and services purchased to support non-business activities. Thus VAT incurred in connection with the free admission of the public is not normally recoverable. 

However, the government will reimburse this otherwise irrecoverable VAT. For this to be the case, the provisions of section 33A of the VAT Act 1994 must apply, and the museum or gallery must be named in an order made by HM Treasury. 

Examples of acceptable claims are for VAT incurred on: 

  • items and collections on display 
  • goods and services necessary for their upkeep 
  • upkeep of the part of the building in which they are housed 
  • provision of free information in relation to the items or collections on display, including advertising and other promotional material 


Application forms may be requested by emailing           


Domestic Reverse Charge technical guide 

An overview of the Domestic Reverse Charge (DRC) here. 

HMRC has published amended guidance on the DRC. The main change involves the supply of scaffolding on zero-rated new build housing. The guidance confirms the change to HMRC’s previous policy and that there will be transitional period up to 1 February 2023 where businesses can use either reverse charge accounting or normal VAT rules. 

Updated guidance on agents VAT registering clients 

HMRC has published updated guidance for agents registering business for VAT. Broadly, the new document covers what information agents require, which may be summarised as: 

  • the agent’s Government Gateway user ID and password for either agent services account or HMRC Online services 
  • agent’s name 
  • agent’s phone number 
  • agent’s email address 
  • the client’s name 
  • client’s date of birth
  • details of client’s turnover and nature of business 
  • client’s bank account details 
  • client’s National Insurance number 
  • a form of ID from the client, eg: passport or driving licence 
  • client’s Corporation Tax Payments, PAYE, Self-Assessment Return, recent payslip or P60 

Limited companies 

If an agent is registering a limited company client, they must have a Company Registration Number and a Corporation Tax Unique Taxpayer Reference (UTR) to complete the VAT registration process. 

Individuals and partnerships 

These applications do not need to have a Self-Assessment UTR to register for VAT, but if they do, it must be supplied. 

An agent will be asked to verify the entity it is registering; therefore, it is prudent to obtain the basic history and background of the applicant’s business before starting the process. Cleary this is good practice generally! 

VAT – A Post Christmas Tale 

Well, Christmas has been and gone!…. and at Christmas tradition dictates that you repeat the same nonsense every year…. 

Dear Jane 

My business, if that is what it is, has become large enough for me to fear that HMRC might take an interest in my activities.  May I explain what I do and then you can write to me with your advice?  If you think a face to face meeting would be better, I can be found in most decent sized department stores from mid-September to 24 December. 

First of all, I am based in Greenland, but I do bring a stock of goods, mainly toys, to the UK and I distribute them. Where do I belong? Am I making supplies in the UK? Do I pay Customs Duty? 

If I do this for philanthropic reasons, am I a charity, and if so, does that mean I do not pay VAT? 

I have heard that giving vouchers can be complicated, I think I will need help with these gifts. 

The toys are of course mainly for children and I wonder if zero rating might apply?  I have heard that small T shirts are zero rated so what about a train set – it is small and intended for children. Does it matter if adults play with it? My friend Rudolph has told me that there is a peculiar rule about gifts.  He says that if I give them away regularly or they cost more than £50 I might have to account for output tax. Is that right? 

My next question concerns barter transactions.  Fathers often leave me a food item such as a mince pie and a drink and there is an unwritten rule that I should then leave something in return.  If I’m given Sainsbury’s own brand sherry, I will leave polyester underpants but if I’m left a glass of Glenfiddich I will be more generous and leave best woollen socks.  Have I made a supply and what is the value please?  My feeling is that the food items are not solicited so VAT might not be due and, in any event; isn’t food zero-rated, or does it count as catering? Oh, and what if the food is hot? 

Transport is a big worry for me.  Lots of children ask me for a ride on my airborne transport.  I suppose I could manage to fit twelve passengers in.  Does that mean my services are zero-rated?  If I do this free of charge will I need to charge Air Passenger Duty?  Does it matter if I stay within the UK, or the EU or the rest of the world? What if I travel to every country?  My transport is the equivalent of six horsepower and if I refuel with fodder in the UK will I be liable for fuel scale charges?  After dropping the passengers off I suppose I will be accused of using fuel for the private journey back home – is this non-business? Somebody has told me that if I buy hay labelled as animal food I can avoid VAT but if I buy the much cheaper bedding hay I will need to pay tax. Please comment. 

May I also ask about VAT registration?  I know the limit is £85,000 per annum but do blips count?  If I do make supplies at all, I do nothing for 364 days and then, in one day (well, night really) I blast through the limit and then drop back to nil turnover. May I be excused from registration?  If I do need to register should I use AnNOEL Accounting?  At least I can get only one penalty per annum if I get the sums wrong. 

I would like to make a claim for input tax on clothing.  I feel that my red clothing not only protects me from the extreme cold, but it is akin to a uniform and should be allowable. These are not clothes that I would choose to wear except for my fairly unusual job. If lady barristers can claim for black skirts, I think I should be able to claim for red dress. And what about my annual haircut?  That costs a fortune.  I only let my hair grow that long because it is expected of me. 

Insurance worries me too.  You know that I carry some very expensive goods on my transport.  Play Stations, mountain bikes, i-Pads and Accrington Stanley replica shirts for example.  My parent company in Greenland takes out insurance there and they make a charge to me.  If I am required to register for VAT in England will I need to apply the Reverse Charge?  This seems to be a daft idea if I understand it correctly.  Does it mean I have to charge myself VAT on something that is not VATable and then claim it back again? 

And what about Brexit? I know the UK has already left the EU, but does this affect me? What about distance selling? How do I account for supplies to and from the EU? Will there be Tariffs? Do I have to queue at Dover? 

Next, you’ll be telling me that Father Christmas isn’t real………. 



Deregistration – When a business leaves the VAT club 

This article considers when and how to deregister from VAT and the consequences of doing so. 

General points 

Deregistration may be mandatory or voluntary depending on circumstances. Although it may be attractive for certain businesses too deregister if possible, this is not always the case. The main reason to remain registered is to recover input tax on purchases made by a business. This is particularly relevant if that business’ sales are: 

  • to other VAT registered businesses which can recover any VAT charged 
  • supplies are UK VAT free (eg; zero rated) 
  • made to recipients outside the UK 

Businesses which make sales to the public (B2C) are usually better off leaving the VAT club even if this means not being able to recover input tax incurred. 

A business applies for deregistration online through its VAT account, or it can also complete a form VAT7 to deregister by post. 

NB: These rules apply to businesses belonging in the UK.  There are different rules for overseas business which are outside the scope of this article. 

The Rules 

Compulsory deregistration 

A business must deregister if it ceases to make taxable supplies. This is usually when a business has been sold, but there may be other circumstances, eg; if a business starts to make only exempt supplies, or a charity stops making business supplies and continues with only non-business activities or when an independent body corporate joins a VAT group. In such circumstances there is a requirement to notify HMRC within 30 days of ceasing to make taxable supplies. 

We have seen, on a number of occasions, HMRC attempting to compulsorily deregister a business because either; it has not made any taxable supplies (although it has the intention of doing so) or it is only making a small amount of taxable supplies. In the first example, as long as the business can demonstrate that it intends to make taxable supplies in the future it is entitled to remain VAT registered. This is often the position with; speculative property developers, business models where there is a long lead in period, or business such as exploration/exploitation of earth resources. 

Voluntary deregistration 

A business may apply for deregistration if it expects its taxable turnover in the next twelve to be below the deregistration threshold. This is currently £83,000. It must be able to satisfy HMRC that this is the case. Such an application may be made at any time and the actual date of leaving the club is agreed with HMRC. It should be noted that when calculating taxable income, certain supplies are excluded. These are usually exempt supplies but depending on the facts, other income may also be ignored. 

Consequences of deregistration 

  • Final return 

A deregistered business is required to submit a final VAT return for the period up to and including the deregistration date. This is called a Period 99/99 return. 

  • Output tax 

From the date of deregistration a business must stop charging VAT and is required to keep its VAT records for a minimum of six years. It is an offence to show VAT on invoices when a business is not VAT registered. 

  • Input tax 

Once deregistered a business can no longer recover input tax. The sole exception being when purchases relate to the time the business was VAT registered. This tends to be VAT on invoices not received until after deregistration, but were part of the business’ expenses prior to deregistration. Such a claim is made on a form VAT427 

  • Self-supply (Deemed supply) 

An often overlooked VAT charge is the self-supply of assets on hand at the date of deregistration. A business must account for VAT on any stock and other assets it has on this date if: 

  1. It could reclaim VAT when it bought them (regardless of whether such a claim was made) 
  1. the total VAT due on these assets is over £1,000 

These assets will include items such as; certain land and property (usually commercial property which is subject to an option to tax or is less than three year old), un-sold stock, plant, furniture, commercial vehicles, computers, equipment, materials, etc, but does not include intangible assets such as patents, copyrights and goodwill. The business accounts for VAT on the market value of these assets but cannot treat this as input tax, thus creating a VAT cost. 

We usually advise that, if commercially possible, assets are sold prior to deregistration. This avoids the self-supply hit and if the purchaser is able to recover the VAT charged the position is VAT neutral to all parties, including HMRC. It is worth remembering that the self-supply only applies to assets on which VAT was charged on purchase and that there is a de minimis limit. We counsel that care is taken to ensure planning is in place prior to deregistration as it is not possible to plan retrospectively and once deregistered the position is crystallised. 

  • Re-registration 

HMRC will automatically re-register a business if it realises it should not have cancelled (eg; the anticipated turnover exceeds the deregistration threshold). It will be required to account for any VAT it should have paid in the meantime. 

  • Option To Tax 

An option to tax remains valid after a registration has been cancelled. A business must monitor its income from an opted property to see whether it exceeds the registration threshold and needs to register again. 

  • Capital Goods Scheme (CGS) 

If a business owns any capital items when it cancels its registration, it may, because of the rules about deemed supplies (see self-supply above) have to make a final adjustment in respect of any items which are still within the adjustment period. This adjustment is made on the final return. 

  • Cash Accounting 

A business will have two months to submit its final return after it deregisters. On this return the business must account for all outstanding VAT on supplies made and received prior to deregistration. This applies even if it has not been paid. However, it can also reclaim any VAT provided that you have the VAT invoices. If some of the outstanding VAT relates to bad debts a business may claim relief. 

  • Partial exemption 

If a business is partly exempt its final adjustment period will run from the day following its last full tax year to the date of deregistration.  If a business has not incurred any exempt input tax in its previous tax year, the final adjustment period will run from the first day of the accounting period in the final tax year in which it first incurred exempt input tax to the date of deregistration. 

  • Flat Rate Scheme 

If a business deregisters it leaves this scheme the day before its deregistration date. It must, therefore, account for output tax on its final VAT return for sales made on the last day of registration (which must be accounted for outside of the scheme). 

  • Self-Billing 

If your customers issue VAT invoices on your behalf under self-billing arrangements (or prepare authenticated receipts for you to issue) a deregistering business must tell them immediately that it is no longer registered. They must not charge VAT on any further supplies you make. There are financial penalties if a business issues a VAT invoice or a VAT-inclusive authenticated receipt for supplies it makes after its registration has been cancelled. 

  • Bad Debt Relief (BDR) 

A business can claim relief on bad debts it identifies after it has deregistered, provided it: 

  • has previously accounted for VAT on the supplies 

No claim may be made more than four years from the date when the relief became claimable. 


As may be seen, there is a lot to consider before applying for voluntary deregistration, not all of it good news. Of course, apart from not having to charge output tax, a degree of administration is avoided when leaving the club, so the pros and cons should be weighed up.  Planning at an early stage can assist in avoiding in nasty VAT surprises and we would always counsel consulting an adviser before an irrevocable action is taken. As usual in VAT, if a business gets it wrong there may be an unexpected tax bill as well as penalties and interest. 

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