Deeks VAT News Issue 65: The Latest to Keep You (and Your Clients) Compliant and Clever

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Welcome to this Issue of Deeks VAT Newsletter

August 2025 issue 65

Keeping you up to date on VAT changes

In this month’s newsletter we cover the following:

Soft Drinks Industry Levy credit is not available where goods not imported

Late VAT payment was due to cash flow issues caused by HMRC’s delayed

Full VAT Recovery on Pension Fund Investment Costs (from 18 June 2025)

New Power to Extend Final VAT Return Deadline on Deregistration

Common VAT Mistakes and How to Avoid Them

VAT Record Keeping. What You Must Keep and For How Long

Latest from the Courts 

Soft Drinks Industry Levy credit is not available where goods not imported

Soft Drinks Industry Levy: No Credit Without Import or Production

The Case: Millennium Cash & Carry Ltd became the first business to test the Soft Drinks Industry Levy (SDIL) rules in the First-tier Tribunal. At the centre of the dispute: can HMRC recover wrongly claimed SDIL credits when the claimant neither imported nor produced the drinks in question?

The Background: SDIL applies to UK-made or imported sugary soft drinks, with rates depending on sugar content. Producers and importers must register with HMRC and pay the levy, but they can claim credits if chargeable drinks are exported, lost, or destroyed.

Millennium claimed credits for exported drinks it had not itself imported, prompting HMRC to issue assessments totalling £127,857 for 2018–2021. The company later accepted it had no legal entitlement to these credits  but argued HMRC lacked the statutory power to assess them.

The Tribunal’s Decision:

• Millennium was not entitled to credits where it hadn’t paid SDIL on the exported drinks.
• There’s no explicit law allowing HMRC to withdraw credits, but HMRC has an implied power to verify returns and deny credits under its general duty to collect tax.
• HMRC could therefore assess where SDIL was due, and credits had been wrongly applied, or periods where no SDIL was due (only credits claimed), HMRC had no power to assess but the credits remain on the taxpayer’s account and can be offset against future SDIL liabilities.

The Time Limit Argument: Millennium also tried to restrict HMRC to a two-year window for assessments, but the Tribunal confirmed the correct time limits are set out in Schedule 8 FA 2017 and depend on the type of assessment being made.

What This Means: This case clarifies the scope of HMRC’s powers under SDIL and exposes gaps in the legislation. We may see HMRC pushing for statutory changes. Any business claiming SDIL credits should double-check entitlement before filing returns.

Late VAT payment was due to cash flow issues caused by HMRC’s delayed repayment. The circumstances warranted a reasonable excuse

When HMRC Delays a Repayment, and Then Penalises You for Being Late

The Case: ESC Studios Ltd was hit with a £9,025.59 penalty for paying its VAT late for the quarter ending 30 June 2024. The reason? A serious cash flow crunch caused by HMRC itself.

The Background: ESC had a large VAT repayment due, linked to the simultaneous production of three films. Despite providing swift, detailed answers to HMRC’s queries and keeping them updated on its financial situation, the repayment wasn’t processed until November 2024, months after the VAT payment deadline.

The Tribunal’s View:

• This wasn’t the usual “insufficient funds” case where cash flow problems are seen as the business’s fault.
• ESC had effectively loaned HMRC its working capital while waiting for repayment.
  Case law allows “lack of funds” to be a reasonable excuse if the taxpayer has shown reasonable foresight and diligence, which ESC had done.
• It wasn’t practical for ESC to take out a loan to plug the gap, and its expectation of a timely repayment meant it didn’t formally request a deferral. The Tribunal said this was reasonable.

The Outcome: The FTT found ESC had a reasonable excuse and cancelled the penalty. It even noted that, had it ruled otherwise, it would still have reduced the penalty to zero on “special circumstances” grounds.

What This Means: This is a reminder that HMRC penalties can be challenged successfully when the delay is due to HMRC’s own actions. If you’re facing a similar situation, keep detailed records of communications and evidence that you acted responsibly.

HMRC updates

Full VAT Recovery on Pension Fund Investment Costs (from 18 June 2025)

Pension Scheme Investment Costs. A Boost for VAT Recovery

The Big Change:

From 18 June 2025, employers can now recover all input VAT on pension fund investment costs, rather than apportioning them with trustees.

The Old Rule:

Historically, these costs were treated as “dual use”  (benefiting both employer and trustees) which meant VAT had to be split.

The New Rule:

HMRC now accepts the entire cost sits with the employer (subject to normal VAT rules). Trustees can also claim VAT on their own scheme management costs if they’re VAT-registered.

What’s Next:

HMRC has promised detailed guidance later in 2025. This should clarify which costs qualify, how claims can be backdated (within the four-year cap), and any impact on existing arrangements.

Why It Matters:

This policy shift could mean a welcome VAT windfall for employers managing pension schemes — particularly those with significant investment portfolios.

New Power to Extend Final VAT Return Deadline on Deregistration

Final VAT Return Deadlines, now More Flexible

The Update: If you’re closing your VAT registration, you might get extra time to file your final VAT return, and now HMRC has the formal legal power to grant it.

Before: Extensions were possible, but purely at HMRC’s discretion, without explicit legislative authority.

Now: The Value Added Tax (Amendment) Regulations 2025 give HMRC statutory backing to extend deadlines when needed.

Why This Helps: It provides certainty for businesses winding up or restructuring, where final record collation can take longer than the standard deadline allows.

Our Take: While this won’t affect every deregistering business, it’s a sensible formalisation of an already helpful practice.

VAT Articles

Avoiding the VAT Pitfalls. A Quick Compliance Checklist

From missing the VAT registration threshold to charging the wrong rate, HMRC sees the same mistakes repeatedly and they can cost you in penalties and interest.
In our latest guide, we break down the most common VAT errors, how to avoid them, and the simple processes that can keep you compliant.

👉 Read the full article here: Common VAT Mistakes and How to Avoid Them

VAT Records. What to Keep and How Long to Keep Them

If you’re VAT-registered, HMRC expects you to keep certain records and keep them organised. That includes invoices, your VAT account, import/export paperwork, and credit/debit notes, generally for six years.
Our new guide explains exactly what HMRC wants to see, how MTD rules apply, and the steps you can take to keep your records compliant and inspection-ready.

👉 Read the full article here: VAT Record Keeping. What You Must Keep and For How Long

Contact Jane Deeks at Deeks VAT Consultancy for professional advice across all industries.  

jane@deeksvat.co.uk | 07710553831 | LinkedIn