Deeks VAT News Issue 68: The Latest to Keep You (and Your Clients) Compliant and Clever

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Welcome to this Issue of Deeks VAT Newsletter    

October 2025 issue 68

Keeping you up to date on VAT changes        

In this month’s newsletter we cover the following: 

Hotelbeds UK Ltd v HMRC: Alternative Evidence and the Right to Deduct VAT

Isle of Wight NHS Trust v HMRC

Paying VAT After Cancelling Your Registration 

Paying VAT on Goods Sold to Settle a Debt 

When is Input Tax Really Blocked? Common Misconceptions Exposed

VAT and Property Transactions: Traps That Cost Businesses Thousands 

Latest from the Courts 

Hotelbeds UK Ltd v HMRC: Alternative Evidence and the Right to Deduct VAT

A recent High Court judgment in Hotelbeds UK Ltd v HMRC has shaken up the rules on VAT recovery.

HMRC had refused millions in input VAT claims where invoices were missing, despite Hotelbeds providing detailed alternative evidence (spreadsheets, VAT numbers, transaction data). The court ruled HMRC’s refusal was flawed — stressing that VAT neutrality and proportionality must come first.

The judgment makes it clear: businesses acting in good faith, with robust records, should not lose their right to deduct VAT simply because an invoice is missing.

For accountants and advisers, this is a crucial reminder that substance can prevail over form. It also strengthens the case for clients who may have had VAT recovery blocked on purely technical grounds.

👉 Read the full article on our website: https://deeksvat.co.uk/hotelbeds-uk-ltd-v-hmrc-alternative-evidence-and-the-right-to-deduct-vat/

Isle of Wight NHS Trust v HMRC: VAT Exemption for Locum Medical Practitioners

The First-tier Tribunal (FTT) has ruled in favour of Isle of Wight NHS Trust, challenging HMRC’s decision that supplies of locum doctors through staffing agencies should be subject to VAT.

Background

• Article 132(1)(c) of the VAT Directive exempts medical care provided by recognised medical professionals.
• Section 31 VATA94 and Group 7 of Schedule 9 extend this exemption to services provided by registered practitioners and their deputies.
• HMRC argued that agency-supplied locums represented a “supply of staff,” not exempt medical care, relying on earlier case law (Mainpay).

Tribunal Findings

• Applying the ordinary meaning of “deputy,” Item 5 exempts the provision of a registered medical practitioner acting in place of another.
• The FTT held that Item 5 is not restricted to out-of-hours GP services, as HMRC suggested.
• Supplies of locums are properly exempt where the role requires a registered medical practitioner.
• The tribunal found the Trust had sufficient evidence showing doctors were provided as deputies, not generic staff.

Decision
The appeal was allowed: agency supplies of locum doctors should be treated as exempt from VAT.

Comment
This case overturns HMRC’s restrictive approach, confirming that agency-supplied locums fall within the VAT exemption for deputies. The decision opens the door to significant VAT reclaims across NHS trusts, recruitment agencies, and private medical practices. Businesses affected should urgently review their position and consider early claims.

HMRC Updates 

Update: Paying VAT After Cancelling Your Registration

HMRC has updated its guidance (September 2025) on what businesses must do once their VAT registration is cancelled.

Final VAT Return

• A final VAT return must be submitted covering the period up to the effective date of deregistration.
• VAT may be due on stock and assets still on hand if input tax was reclaimed and the VAT due is more than £1,000.
• Adjustments or corrections for earlier periods should be included.
• Businesses should not delay filing while waiting for late invoices, there is a post-deregistration process for reclaiming VAT.

Making Payments

• Payments from UK accounts can be made via Faster Payments (same/next day), CHAPS (same day), Bacs (3 days), Direct Debit or HMRC online services.
• Payments from overseas accounts must be in sterling, using HMRC’s published IBAN and SWIFT/BIC details. Extra time should be allowed for international transfers.

Reclaims

• VAT incurred while registered can still be reclaimed, and in some cases VAT on services incurred after deregistration may also be recoverable where linked to taxable business activity.
• HMRC has introduced a dedicated process: Reclaim or tell HMRC VAT is due when VAT registration is cancelled.

Record Keeping

Businesses must retain VAT records for six years after deregistration.

📌 Key point: Deregistration does not remove your obligations, you must submit a final return, pay any VAT due promptly, and use the updated reclaim process where applicable.

HMRC Update: Pay VAT after telling HMRC about goods sold to pay off a debt

HMRC has updated its guidance (September 2025) on how businesses should account for VAT when goods are sold to pay off a debt.

When VAT Is Due

• If goods are transferred to a creditor in settlement of a debt, VAT is normally due on that transfer.
• Businesses must tell HMRC about the VAT due and ensure it is paid correctly.

Making Payments

• From UK accounts, payments can be made by Faster Payments, CHAPS, Bacs, Direct Debit, or through HMRC’s online services.
• From overseas accounts, payments must be made in sterling using HMRC’s published IBAN and SWIFT/BIC details. Extra time should be allowed for international transfers.

Updated Guidance

HMRC has refreshed its guidance on how to notify and account for VAT in these cases:

• Tell HMRC about VAT due on goods sold to pay off a debt
• VAT Notice 700 (The VAT Guide) – Section 18.4.1 now sets out the process for reporting VAT on such goods.
• VAT Notice 700/18 (Relief from VAT on Bad Debts) – Section 5.3 has been updated on how and when claims should be made.

📌 Key point: If goods are used to settle a debt, the transfer is normally treated as a taxable supply. Businesses must notify HMRC, pay any VAT due, and follow the updated process in the revised notices.

When is VAT Input Tax Really Blocked? Common Misconceptions Exposed

Many businesses, and even advisers, write off VAT claims unnecessarily. HMRC blocks are targeted, not blanket, and recent case law shows that recovery is possible in more situations than many assume.

Missing invoices? Regulation 29 and Hotelbeds v HMRC confirm that robust alternative evidence can support recovery.

Staff entertainment? Input VAT is often recoverable when it relates to employees, though not for clients.

Employee expenses? Travel and subsistence can qualify if the business link is clear.

Even partial exemption does not always mean loss of input tax, de minimis rules and apportionment methods can allow recovery.

Key message: don’t assume input VAT is blocked. With the right records and understanding of the rules, many costs thought to be lost can, in fact, be reclaimed.

VAT Articles

VAT and Property Transactions: Costly Traps to Avoid

Property is one of the most complex areas of VAT. The sums are large, the rules are technical, and the penalties for mistakes can be severe. Yet property deals continue to be an area where VAT is often overlooked until it’s too late. At Deeks VAT Consultancy, we regularly see accountants and their clients caught out by avoidable errors that result in irrecoverable VAT, HMRC disputes, or costly delays in completing transactions.

VAT on property is one of the riskiest areas for accountants and their clients. Missed Options to Tax, failed TOGC conditions, or errors in partial exemption can all lead to irrecoverable VAT and HMRC disputes. Even deposits, inducements, and break fees carry hidden risks.

At Deeks VAT Consultancy, we work alongside accountancy firms as their in-house VAT team, reviewing contracts, advising on TOGC and OTT, negotiating partial exemption methods, and supporting in disputes.

Read our full article here  

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

jane@deeksvat.co.uk | 07710553831 | LinkedIn  

louis@deeksvat.co.uk | 07446 321371 | LinkedIn