Deeks VAT News issue 46

Welcome to this months Newsletter      July 2024 issue 46 Keeping you up to date on VAT changes      In this months newsletter we cover the following:     More on separate and single supplies. The KFC dip pot case Hotel De La Tour UPDATE Telent Technology Services Ltd: no relitigation of input tax claim – UT VAT grouping […]

Welcome to this months Newsletter     

July 2024 issue 46

Keeping you up to date on VAT changes     

In this months newsletter we cover the following:    

More on separate and single supplies. The KFC dip pot case

Hotel De La Tour UPDATE

Telent Technology Services Ltd: no relitigation of input tax claim – UT

VAT grouping and consideration

What is an exempt supply, and what does it mean?

Overseas businesses claiming VAT incurred in the UK

Education – what, precisely, is exempt?

Registration: Extension of time limit

NAO issues scathing attack on HMRC customer service

Mind the gap – HMRC latest figures

A VAT: Did you know?

In the current election the Liberal Democrats’ campaign states that they would apply zero-rating to children’s toothbrushes and toothpaste. Whether this impacts the money left by the tooth fairy remains to be seen.

UPDATE: The Hotel La Tour Case: VAT Recovery on Share Sale Costs


The Hotel La Tour case has become a focal point for understanding VAT recovery on the costs associated with selling shares in a subsidiary. This article delves into the intricate details of the case, the court’s decisions, and its broader implications for businesses.


Hotel La Tour Limited, a holding company managing a group of luxury hotels, faced a significant challenge in recovering input VAT on professional services related to selling shares of its subsidiary. The sale was intended to fund the construction of a new hotel in Milton Keynes. HMRC disputed the VAT recovery, arguing that the costs were directly linked to the exempt share sale, making the VAT non-recoverable.

Tribunal Decisions

Initially, both the First-tier Tribunal (FTT) and Upper Tribunal (UT) sided with Hotel La Tour, allowing VAT recovery. They concluded that the professional fees incurred were part of raising funds for a taxable business activity—building and managing a new hotel. The tribunals argued that these costs did not directly influence the share price and thus were not solely attributable to the exempt share sale.

Court of Appeal Judgment

On 21 May, the Court of Appeal (CA) overturned the earlier tribunal decisions. The CA determined that the professional fees had a direct and immediate link to the exempt share sale, which disqualified the input VAT from being recoverable. This ruling aligned with HMRC’s stance that the costs were a component of the share sale price, emphasising the necessity of a direct and immediate link between costs and taxable business activities for VAT recovery.

Implications for Businesses

The CA’s decision underscores the complexities involved in recovering VAT on costs related to share sales. Businesses planning to fund taxable activities through the sale of subsidiaries must carefully consider their VAT positions early in the transaction planning stages. The ruling serves as a cautionary tale, illustrating the need for detailed and strategic VAT planning to avoid unexpected liabilities.

Further Actions

Hotel La Tour has sought permission to appeal the decision to the Supreme Court. Businesses in similar situations may wish to submit protective claims, pending the outcome of any further appeals. This case highlights the necessity of professional advice and thorough planning in managing VAT implications for mergers, acquisitions, and significant transactions.


The Hotel La Tour case reveals the nuanced challenges of VAT recovery in share sales. Businesses must navigate these complexities with informed strategies and professional guidance to ensure compliance and optimize their VAT positions.

For more detailed advice tailored to your specific business needs, contact Deeks VAT Consultancy. Our expert team is equipped to help you navigate the intricate landscape of VAT regulations, ensuring your business remains compliant and financially optimised. You can read previous articles about this case here and here.

Separate and single supplies. The KFC dip pot case

Latest from the courts

In the First-Tier tribunal case of Queenscourt Limited the issue was whether dip pots supplied as part of a takeaway meal deal are a separate zero-rated supply (of cold food) or whether they are part of a single VATable supply of hot food.


The appellant had originally accounted for output tax on the basis that dip pots formed part of a single standard rated supply with other food. However, following advice, it then formed the view that zero-rating applied to these pots and submitted a claim for overpaid output tax. HMRC agreed to repay the VAT claimed.

Subsequently, a further claim as made on a similar basis for a later period. This was considered by a different officer who refused to make the repayment on the basis that there was no separate supply of the dip pots. This called into question whether the payment of the initial claim was correct. The officer considered the previous repayment to have been incorrect and issued assessments in order to recover the amount which had been repaid.

Queenscourt now appealed both against the decision to refuse the repayment claimed in the second error correction notice and also against the recovery assessment relating to the first error correction notice.  Moreover, the recovery assessments are invalid as there has been no change in circumstances and no new facts have come to light since HMRC agreed to repay the tax. Alternatively, it argues that HMRC are prevented from recovering the tax, either on the basis of legitimate expectation or estoppel by convention, in each case arising as a result of HMRC’s original agreement that that tax should be repaid.


The appeal was dismissed.

  • On the dip point issue, the FTT stated that it was unlikely the dip would be eaten on its own, or as an end in itself, unlike the coleslaw or cookie elements – It is a means of better enjoying the hot food. Consequently, it is an element of a standard rated single composite supply of hot takeaway food.
  • Legitimate expectation – Whilst the Tribunal did have jurisdiction to consider arguments based on legitimate expectation in the context of an appeal against a recovery assessment, it is not in this case sufficiently unfair for HMRC to resile from their initial acceptance of the claim made in the first error correction notice and to apply the correct tax treatment.
  • Estoppel – HMRC is not estopped from making or relying on their recovery assessments as there has been no detrimental reliance on the original position taken by HMRC in connection with any subsequent mutual dealings.

Telent Technology Services Ltd: no relitigation of input tax claim – UT

This case relates to a claim for input tax on fees paid for investment advice relating to its occupational pension scheme. The Upper Tribunal ruled on the procedural rules regarding relitigating when the original claim was withdrawn by Telent.

In 2014, HMRC issued an assessment to recover that input tax for the periods 11/10 to 05/14. Telent appealed the assessment, but later withdrew that appeal. Six months later, having changed professional advisers, Telent renewed its argument for input tax recovery, and made a claim for the periods 08/12 to 08/16. HMRC ultimately conceded that Telent was entitled to input tax recovery in principle, but argued that the new claim could not overlap the period dealt with in the Assessment Appeal. Telent appealed this decision.

The Upper Tribunal has upheld the FTT’s decision that Telent was prevented from relitigating the overlap period.

VAT grouping and consideration

The Advocate General (AG) was asked the following questions regarding VAT groups:

Does a VAT Group have the effect of removing supplies of goods or services made for consideration between its members from the scope of VAT?

Do supplies of goods or services made for consideration between those persons fall within the scope of VAT in any event in the case where the recipient of the supply of goods or services is not (or is only partly) entitled to deduct input tax, as there is otherwise a risk of tax loss?

AG proposed that the Court answer the questions referred for a preliminary ruling by the Bundesfinanzhof (Federal Finance Court, Germany) as follows:

The relevant law must be interpreted as meaning that supplies of services for consideration between persons forming part of a group formed by legally independent persons, but closely bound to one another by financial, economic, and organisational links do not fall within the scope of VAT, even where the recipient of the supply of goods or services is not (or is only partly) entitled to deduct input VAT.

Although EU case lase is no longer binding on the UK, it can be persuasive and should still be considered when advising on UK VAT law.

Further information

What is an exempt supply, and what does it mean?

VAT Basics

Exemption generally

Some services are exempt from VAT. If all the services a business provides are exempt, it will not be able to register for VAT, which means it cannot reclaim any input tax incurred on its purchases or expenses.

If a business is VAT registered it may make both taxable and exempt supplies (it will need to make at least some taxable supplies to be registered). Such a business is classed as partly exempt and it may be able to recover some input tax, but usually not all (Please see de minimis below).

Types of supply which may be exempt

Examples are:

  • Betting, gaming, dutiable machine games and lotteries
  • Burial and cremation
  • Cultural services
  • Museums, galleries, and zoos
  • Live performances
  • Education
    • Education
    • Vocational training
    • Examination services
    • Individual tuition
  • Finance
    • The issue, transfer or receipt of money, or any security for money
    • Granting credit
    • intermediary services
    • Dealing in shares, stocks, bonds, notes debentures and similar
    • Dealings in currency
    • Banking
    • Management of some investments
  • Fund raising events by charities and other qualifying bodies
  • Health and welfare
    • Medical care
    • Dentistry
    • Pharmacy services
    • Opticians
    • Welfare services
  • Insurance
  • Generally; insurance and reinsurance transactions and intermediary services
  • Investment gold
  • Land*
    • Generally; selling or letting land or property
  • Postal services
  • Sport, sports competitions, and physical education
  • Competition entries
  • Sporting facilities

The above list is not exhaustive.

* Most businesses which do not routinely make exempt supplies usually encounter exemption in the area of land and property and it is an easy trap to fall into not to consider VAT when involved in property transactions. This is one area where VAT planning may be of assistance as it is possible in most situations to deliberately choose to add VAT to an exempt supply to avoid a loss of input tax. This is known as the option to tax.

The legislation covering exemption is found at The VAT Act 1994, Schedule 9

What does exemption mean?

An entity only making exempt supplies cannot register for VAT and consequently has no VAT responsibilities or obligations. While this may seem attractive, exemption is often a burden rather than a relief. This is because any VAT it incurs on any expenditure is irrecoverable and represents an additional cost. This often affects charities, although there are some limited reliefs.

Exempt supplies are completely different to non-business activities, although the VAT outcome is often similar.

Partial exemption de-minimis

A partly exempt business cannot usually recover all of the input tax it incurs. However, there is a relief called de minimis. Broadly, if VAT bearing expenditure is below certain limits in may be recovered in full. These are provisional calculations and are subject to a Partial Exemption Annual Adjustment.

Overseas businesses claiming VAT incurred in the UK


The HMRC form for overseas businesses claiming VAT incurred in the UK has been updated.

The form VAT65A to reclaim VAT paid in the UK if a business is not registered in the UK has been amended to include information about corresponding with HMRC by email.

Claims in the UK

A non-UK based business may make a claim for recovery of VAT incurred in the UK. Typically, these are costs such as; employee travel and subsistence, service charges, exhibition costs, tooling, imports of goods, training, purchases of goods in the UK, and clinical trials etc.

Who can claim?

The scheme is available for any businesses that are:

  • not VAT registered in the UK
  • have no place of business or other residence in the UK
  • do not make any supplies in the UK

What cannot be claimed?

The usual rules that apply to UK business claiming input tax also apply to claims from overseas. Consequently, the likes of; business entertainment, car purchase, non-business use and supplies used for exempt activities are usually barred.


There is no maximum claim amount, but for most periods of less than twelve months a minimum of £130 of VAT must be claimed. For annual claims or for periods less than three months ending on 30 June, the VAT must be at least £16.


The business must obtain a Certificate Of Status (CoS) from its local tax or government department to accompany a claim.

The CoS must be the original and contain the:

  • name, address and official stamp of the authorising body
  • claimants name and address
  • nature of the claimant’s business
  • claimant’s business registration number

The CoS is only valid for twelve months. Once it has expired you will need to submit a new CoS.

HMRC has previously announced (RCB 12 – 2018) that it is taken a firmer stance on what constitutes an acceptable CoS.

Claim form

The application form is a VAT65A and is available here  Original invoices which show the VAT charged must be submitted with the claim form and CoS. Applications without a certificate, or certificates and claim forms received after the deadline are not accepted by HMRC. It is possible for a business to appoint an agent to register to enable them to make refund applications on behalf of that business.


Claim periods run annually up to 30 June and must be submitted by 31 December of the same year. With the usual Christmas rush and distractions, it may be easy to overlook this deadline and some claims may be significant. Unfortunately, this is not a rapid process and even if claims are accurate and the supporting documents are in all in order the claim often takes some time to be repaid. Although the deadline is the end of the year HMRC say that it will allow an additional three months for submission of a CoS (only).


Refunds are made within six months of a “satisfactory application.”

Education – what, precisely, is exempt?

There is a general assumption that all “education’ is exempt. It is true to say that a lot of education and tuition is indeed exempt, but that is not automatically the case. It is important to establish the reason for the application of non-taxable treatment. The VAT treatment depends on; what is actually being provided, who is providing it and the precise arrangements. I consider the more common issues below.

The legislation covering education is VAT Act 1994, Schedule 9, Group 6.

What does the term education mean?

It means a course, class or lesson of instruction or study in a subject. This includes:

  • lectures
  • educational seminars
  • conferences and symposia
  • recreational and sporting courses
  • distance teaching and associated materials

Schools etc

The first type of education exemption is relatively clear: It is the provision of education by an eligible body. An eligible body is, broadly; a school, college, or university (supplies by Local Authority schools, city technology colleges, sixth form colleges, academies, and free schools – where education is provided for no charge, are non-business activities rather than exempt, and have their own set of rules).

It is also worth noting that any ‘closely related” goods or services provided with exempt education are themselves exempt. This may cover items such as; certain stationery, accommodation, transport and catering.

There is usually very little disagreement about the VAT treatment of these entities.

Charities/ non-profit making organisations

If a charity/NFP entity is an eligible body supplies of education and vocational training (see below) by it are exempt. Such an organisation is likely to be an eligible body, where it’s a charity, professional body or company which:

  • cannot and does not distribute any profit it makes, and
  • any profit that does arise from its supplies of education is used solely for the continuation or improvement of such supplies.

There can be disputes over the term “does not distribute any profit” so care should be taken in this respect and advice sought if there is any doubt.


Exemption applies to the supply of “private tuition, in a subject ordinarily taught in a school or university, by an individual teacher acting independently of an employer” – VAT Act 1994 Schedule 9, Group 6, item 2.

Taking each of these tests in turn:

  • What is “private tuition?

In order to qualify, the provider of tuition must act independently and not be an employee. Practically, this means that the person providing the tuition must either be a sole proprietor, a partner in a partnership, or a member of a Limited Liability partnership (LLP). Consequently, exemption does not apply if the teaching is carried out by a company or an employee. This is a matter of fact, however, it is possible to structure matters such that the exemption applies if it does not currently (and the restructure is possible commercially).

  • What does “ordinarily taught” in schools/universities mean?

This is often a moot issue and the significant amount of case law highlights this. Most of the mainstream subjects are covered of course, but what about subjects like; golf, horse riding and dance? Would they be ordinarily taught in schools? (The answer according to case law is; yes). However, there are many other subjects which are debatable and HMRC usually take an uncompromising line on this area, especially around sporting activities. If there is any doubt, we recommend seeking advice.

  • What does tuition mean?

Clearly, if a person teaches or coaches a subject to an individual or group, then this qualifies as tuition. However, a distinction must be made between this and a recreational type of activity which may be called a “class,” but no actual tuition is provided. Exemption does not apply, for example, for the simple provision of gymnasium or swimming pool facilities, or a yoga class where no coaching takes place (however, it is possible that these may be exempt under different parts of the legislation, but that is not the subject of this article).

Vocational training

Vocational training means training or re-training and work experience for paid employment or voluntary employment in areas beneficial to the community.

If vocational training is provided for a charge the VAT consequences are either:

  • for an eligible body (see above) vocational training is exempt
  • for a non-eligible body vocational training is still exempt to the extent that it is funded under an approved government funding scheme. Otherwise the supply is taxable.

English as a Foreign Language (EFL)

If a commercial entity makes supplies of tuition of EFL they will qualify for exemption. In these cases, tuition includes all elements that are integral to the course, held out for sale as such, and are the means by which it is intended to promote fluency in the use of the English language.


In respect of all of the above, if exemption does not apply the supply of education falls to be taxable as a default.

For completeness, exemption may also apply to; research, examination services, youth clubs, day nurseries, crèches, and playgroups but these activities are outside the scope of this article.


There are many traps for the unwary here. Planning is always advisable and I recommend that any entity which provides education is conscious of the VAT implications and seeks advice where/when necessary.

Registration: Extension of time limit

HMRC has extended the time limit for taxpayers to receive a reply after applying for VAT registration.

The previous 30-day response deadline is now 40-days.

The 40-day limit change also applies to apply to VAT registration notices for cancelling registration and group/divisional registration. The previous time limit for thee was 15-days.

Notices (VAT Notice 700/11) – Cancelling your VAT registration and (VAT Notice 700/2) – Group and divisional registration have been updated.

NAO issues scathing attack on HMRC customer service

The National Audit Office (NAO) has issued a report: Value for money which covers HMRC’s Performance management and Project and service delivery. Specifically, the department’s support of its “customers” (although I maintain the word should be; Taxpayers) through services provided online, through written correspondence and over the telephone.

(My) Summary

HMRC is awful and services are getting worse.

Some extract quotes:

“In 2022-23, HMRC spent £881 million on customer service. Performance has been below expected levels for telephone and correspondence for almost all of the last five years”.

“HMRC’s telephone and correspondence services have been falling below the expected service levels for too long, and HMRC has not achieved planned efficiencies. To achieve value for money HMRC must provide a timely and effective service for customers needing help with their tax or benefits, even as it attempts to reduce costs.”

“HMRC’s strategy to replace traditional forms of contact with digital services makes sense in many ways. Digital transactions can be easier and faster for many customers to access and submit information. However, they do not currently allow customers to resolve more complex queries.”

“… digital services have not had the effect HMRC hoped for…”  “While many of HMRC’s digital services work well, they have not made enough of a difference to customer contact levels” and  “they do not currently allow customers to resolve more complex queries”.

“HMRC has been unable to cope with telephone demand and consequently fallen short in processing correspondence and dealing with telephone calls according to procedures, creating further service pressures. HMRC felt it had no choice but to close phone lines to catch up and compel people to use digital services. It has had to reverse this approach in the face of stakeholder opposition.”

“There are opportunities to reduce unnecessary levels of contact and improve efficiency. HMRC must demonstrate it understands how to make these gains, and form more realistic plans for how to deliver these, while ensuring it maintains service levels.”

This performance is simply unacceptable – as anyone who has had dealings with HMRC will know.

Mind the gap – HMRC latest figures

GOV.UK has published details of the most recent measurement of the tax gap for 2022-20223.

What is the tax gap?

The tax gap is measured by comparing the net tax total theoretical liability with tax actually paid. This is comparing the amount of tax HMRC expected to receive in the UK and the amount HMRC actually received.

The figures

The tax gap is estimated to be 4.8% of total theoretical tax liabilities, or £39.8 billion in absolute terms, in the 2022 to 2023 tax year.

Total theoretical tax liabilities for the year were £823.8 billion.

There has been a long-term reduction in the tax gap as a proportion of theoretical liabilities: the tax gap reduced from 7.4% in the tax year 2005 to 2006 to 4.8% in the tax year 2022 to 2023.

While most of the components follow a downward trend, with the largest proportionate fall between 2005 to 2006 and 2022 to 2023 in the VAT gap, falling from 13.7% to 4.9%, the Corporation Tax gap estimate has increased from 11.4% in 2005 to 2006 to 13.9% in 2022 to 2023.

The Corporation Tax gap share has increased from 17% of the overall tax gap in 2018 to 2019 to 34% in 2022 to 2023, while the share of the tax gap from VAT has fallen from 28% of the overall tax gap in 2018 to 2019 to 20% in 2022 to 2023. The Income Tax, NICs and Capital Gains Tax gap share decreased from 39% to 34% over the last 5 years.

The tax gap from small businesses is the largest component of the tax gap by customer group at a 60% share in 2022 to 2023; the tax gap from wealthy and individuals each make up a low proportion of the tax gap at 5% each in 2022 to 2023

The VAT gap

VAT represents 20% of the overall tax gap.

The VAT tax gap is 4.9%.

There are several approaches to measuring tax gaps. VAT and excise duties gaps are mainly estimated using a ‘top-down’ approach, by comparing the implied tax due from consumer expenditure data with tax receipts. Most other components are estimated using a ‘bottom-up’ approach, based on HMRC’s operational data and management information.

A top-down approach uses independent, external data on consumption to estimate the tax base. The tax base is used to calculate a theoretical value of tax that should be paid. The actual amount of tax paid is subtracted from this theoretical value to estimate the tax gap.

For any VAT or TAX Enquiries contact:

Jane Deeks, Managing Director


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