Deeks VAT News Issue 61
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The Accountants VAT Club
Don’t forget….our exclusive community for forward-thinking accountants. Coming soon!!! Four membership tiers: Silver, Gold, Diamond, and Bespoke, which can transform your practice’s VAT services.
Join the waiting list now for early access, exclusive updates, and a chance to be among the first to elevate your VAT expertise with The Accountants VAT Club!
Find out more and join the waiting list
Welcome to this Issue of Deeks VAT Newsletter
June 2025 issue 61
Keeping you up to date on VAT changes
In this month’s newsletter we cover the following:
Walkers Snack Foods Limited v HMRC – VAT Rating of Snack Foods
HMRC Update: Charging and reclaiming VAT on goods and services related to private school fees
HMRC Update – VAT Notice 749: Local authorities and similar bodies
VAT Group Registration – When Multiple Companies Should Unite
Latest from the Courts
Walkers Snack Foods Limited v HMRC – VAT Rating of Snack Foods
Background Snacks made from potato and potato starch, similar to potato crisps, are excepted from zero-rating and subject to standard-rate VAT.
Case Summary The Upper Tribunal upheld HMRC’s decision that Walkers’ ‘Sensation Poppadoms’ are standard-rated for VAT. Despite Walkers arguing these should be zero-rated as food for human consumption, the tribunal found they fall within excepted item 5 of Group 1 as products similar to potato crisps made from potato or potato starch.
Key Findings
- Products with 39-40% combined potato content (granules and starch) qualify as “made from potato”
- Potato granules are included within the term “the potato”
- Despite different names and manufacturing processes, the products are sufficiently similar to potato crisps in packaging, appearance, texture and taste
- The tribunal’s multifactorial assessment properly considered various distinguishing factors but concluded similarities outweighed differences
Implications This decision reinforces the broad interpretation of excepted items for VAT purposes. Food businesses should review their product classifications to ensure correct VAT treatment, particularly for potato-based snack products that may appear different from traditional crisps but share similar characteristics.
The case demonstrates the complexities in determining appropriate VAT rates for food products and highlights the importance of proper product classification.
Ingliston Driving Experiences Ltd – Temporary Reduced VAT Rate for Driving Experiences
Background
The Government introduced a temporary 5% VAT rate in July 2020 for hospitality, tourism and admissions to certain attractions during the coronavirus pandemic.
Case Summary
The First-tier Tribunal ruled that Ingliston Driving Experiences Ltd (IDE) correctly applied the 5% VAT rate to its supercar driving experiences, overturning HMRC’s assessment that standard rate should apply.
Business Model IDE operates driving experiences where customers drive or are driven in supercars at off-road circuits. Customers purchase vouchers, redeem them online to select venues and vehicles, then receive tickets for their experience. Professional instructors accompany all customers for safety.
Key Legal Issues
Right of Admission
HMRC argued IDE supplied more than mere admission (vehicle use, tuition, supervision). The tribunal disagreed, finding IDE did supply a “right of admission” in its plain meaning. Like amusement park customers paying admission to enjoy rides, IDE customers pay admission to enjoy driving high-powered cars. Instruction and supervision simply enable safe enjoyment.
Qualifying Attraction
The tribunal had to determine whether IDE’s facility constituted a “similar cultural event or facility” to those listed (shows, theatres, circuses, fairs, amusement parks, etc.).
Applying the CJEU’s Erotic Centre criteria (collective enjoyment, paying customers, relatively large simultaneous participation), the tribunal found IDE’s offerings aligned with amusement park characteristics – providing thrills and excitement through driving experiences.
Decision
The tribunal allowed IDE’s appeal, confirming the 5% rate applied correctly. The facility qualified as similar to a fair or amusement park, meeting the temporary reduced rate criteria.
Implications
This decision clarifies that experience-based attractions can qualify for reduced VAT rates if they provide entertainment similar to traditional amusement facilities, even when involving instruction or supervision elements.
HMRC Updates
Charging and reclaiming VAT on goods and services related to private school fees
Updated Guidance on Pre-Registration VAT
What’s Changed
HMRC has updated the ‘Incurring VAT on supplies before registering for VAT’ section of their private school fees guidance with a new practical example demonstrating how VAT applies when services are used before VAT registration.
Key Update
The guidance now includes a specific example showing how schools should handle VAT on services they began using before becoming VAT-registered. This addresses the common scenario where private schools started incurring costs in preparation for the January 2025 VAT changes but weren’t yet registered for VAT.
Practical Impact
- Timing Issues: Schools can now see clearly how to treat VAT on services that span the pre and post-registration periods
- Recovery Rights: The example demonstrates what VAT can be reclaimed on pre-registration supplies
- Compliance Clarity: Provides concrete guidance for schools navigating the transition period around VAT registration
Why This Matters
Many private schools began preparing for VAT implementation months before registration, incurring costs for consultancy, system upgrades, and compliance services. This updated example removes uncertainty about VAT treatment and recovery rights for these transitional arrangements.
Bottom Line
This practical addition helps schools understand their VAT position on pre-registration expenditure, ensuring they don’t miss out on legitimate VAT recovery whilst maintaining proper compliance with the new rules.
The update reflects HMRC’s recognition that schools needed clearer guidance on this transitional issue affecting many establishments preparing for the VAT changes.
VAT Notice 749: Local Authorities and Similar Bodies – Key Updates
What’s Changed
HMRC has updated VAT Notice 749 with two important corrections affecting local authorities and public bodies:
1. Section 7.2 ‘Insignificant Proportion’ Amendment
What was removed: Reference to “VAT attributed and apportioned to exempt supplies”
Impact: Clarifies the calculation methodology for determining when VAT on exempt activities can be recovered
Why it matters: Simplifies the insignificance test criteria, making it clearer for local authorities to determine VAT recovery eligibility
2. Section 7.5 Deadline Correction
What changed: Deadline for using special section 33 VAT recovery method corrected from 31 October to 30 September
Timeline: Following the end of the financial year
Impact: Local authorities now have one month less to conclude their annual VAT recovery calculations
Synopsis of Updates
These technical corrections address practical compliance issues for local authorities managing VAT recovery on exempt business activities. The shortened deadline particularly affects authorities using special section 33 recovery methods, requiring earlier completion of their annual VAT calculations.
Practical Implications
- Local authorities must adjust their year-end VAT procedures to meet the earlier 30 September deadline
- The simplified insignificance test may make VAT recovery calculations more straightforward
- Authorities should review their current VAT recovery processes to ensure compliance with the updated guidance
- These updates reflect HMRC’s ongoing efforts to clarify VAT obligations for public bodies whilst ensuring accurate and timely compliance.
VAT Group Registration – When Multiple Companies Should Unite
Does your business operate through multiple companies? VAT group registration could streamline your administration and boost cash flow by treating related companies as a single entity for VAT purposes.
What is VAT Group Registration? Multiple eligible companies can register as one VAT group, eliminating the need to charge VAT on transactions between group members. This means no more VAT on inter-company sales, management charges, or shared services.
Key Benefits:
• Improved cash flow – No VAT funding required on internal transactions • Reduced administration – Single VAT return for the entire group • Simplified accounting – Consolidated VAT records and payments • Strategic flexibility – Optimised partial exemption across the group
But Consider the Risks:
Joint and several liability means all group members become responsible for the group’s VAT debts. HMRC can pursue any member for the entire group’s obligations – a significant consideration for any business.
Is It Right for You?
VAT groups work best for businesses with:
- High-volume trading between group companies
- Centralised finance functions
- Mixed exempt and taxable activities across entities
- Regular acquisition and disposal activity
Eligibility Requirements Companies must have clear control relationships (typically 50%+ ownership) and be engaged in business activities. The structure must demonstrate genuine commercial substance rather than artificial arrangements.
Getting It Right
The decision requires careful analysis of your group structure, trading patterns, and long-term business plans. Poor implementation can create compliance burdens that outweigh the benefits.
Want the full picture?
Read our comprehensive article on VAT group registration to understand the detailed requirements, implementation process, and strategic considerations. Read the full article here
Need specialist VAT guidance? Contact Jane Deeks at Deeks VAT Consultancy for professional advice across all industries.
jane@deeksvat.co.uk | 07710553831 | LinkedIn