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Welcome to Deeks VAT Newsletter

28 October 2025  issue 69

Helping you stay ahead of the VAT curve.

If you thought VAT was dull, this weekʼs line-up will make you think again. From casinos and skincare to remote gaming and partial exemption, the tribunals have been busy deciding what counts as a taxable stake, a cosmetic supply, and a fair slice of input tax recovery.

HMRC has also been puffing up a storm with its new Vaping Products Duty, and overseas businesses are being reminded how to claim VAT refunds without getting tangled in red tape.

So, grab your coffee (or vape if you must) and letʼs get into this weekʼs updates.

In this months newsletter we cover the following:

• Hippodrome Casino Ltd v HMRC [2024] UKUT 00027 (TCC)
• Illuminate Skin Clinics Ltd v HMRC [2025] UKUT 341 (TCC)
• Countdown to Vaping Products Duty and Stamps Scheme
• VAT: Overseas Repayments for Non-UK Businesses
• This Weekʼs VAT Article: How does partial exemption work?

Latest from the Courts

Hippodrome Casino Ltd v HMRC [2024] UKUT 00027 (TCC)

The dispute concerned the recovery of input VAT by Hippodrome Casino Ltd (HCL), which operates a mixed-use venue in Leicester
Square offering taxable hospitality and entertainment supplies alongside exempt gaming. The issue was whether HCL could use a
floorspace-based override method instead of the standard turnover-based partial-exemption method to apportion residual input tax.

The First-tier Tribunal had approved the override, but the Upper Tribunal overturned that decision. It found the FTT had erred in law by
not considering the dual-use nature of hospitality areas that supported the exempt gaming business. Because those areas were used to attract
and retain gamblers, the override method did not guarantee a more precise result than the standard method. The UT reinstated HMRC’s
position, confirming that an override may only be applied when it produces a demonstrably more accurate outcome.

Commentary

This was a gamble that didnʼt pay off. For anyone managing both taxable and exempt activities, remember that HMRC wants evidence of
precision, not creativity. Dual-use areas blur the line between taxable and exempt use and quickly draw HMRC fire. Until the Court of Appeal
gives its verdict, treat override methods as high-risk, and document everything.

Illuminate Skin Clinics Ltd v HMRC [2025] UKUT 341 (TCC)

The Upper Tribunal has revisited whether aesthetic and wellness treatments can qualify as VAT-exempt ‘medical care’. The clinic, run by
a GMC-registered doctor, argued that its treatments, including Botox, fillers, fat-reduction and skin therapies, had therapeutic purpose. The
FTT had disagreed, finding them mainly cosmetic.

The UT held that the FTT had erred in law by failing to give proper weight to consultation documents evidencing diagnosis of health
disorders. It set aside the FTT’s decision and remitted the case back for reconsideration, directing that a multi-factorial analysis be applied
to determine each treatment’s principal purpose, therapeutic or cosmetic.

Commentary

Finally, a glimmer of clarity for the aesthetics sector. Being medically qualified doesnʼt automatically confer exemption, but a cosmetic
label doesnʼt automatically rule it out. What counts is evidence: consultation notes, diagnosis, and therapeutic intent. Clinics should tighten
documentation and advisers should monitor the rehearing closely, it may redefine where medicine ends and make-up begins.

It will be interesting to hear the FTT’s decision.

HMRC Updates

Countdown to Vaping Products Duty and Stamps Scheme

HMRC reminded manufacturers and importers that from 1 October 2026 a new duty will apply to liquids containing nicotine.

VAT: Overseas Repayments for Non-UK Businesses

HMRC updated guidance clarifies submission routes, evidence requirements, and contact details for refund claims.

VAT Article

This Weekʼs VAT Article: How does partial exemption work?

Partial exemption determines how much input VAT a business can reclaim when it makes both taxable and exempt supplies. Common in property, finance, and education sectors, it ensures businesses only recover VAT that relates to taxable outputs.

The Basics

If all your supplies are taxable, happy days, full recovery. If some are exempt (e.g. residential rents, financial services), input tax must be apportioned between taxable and exempt use.

Standard Method

HMRCʼs default method calculates recoverable VAT as the ratio of taxable turnover to total turnover.

Example: £800k taxable / £1 million total = 80% recovery.

Partial Exemption Special Methods (PESM)

Where the standard method gives an unfair result, a business can agree a bespoke PESM with HMRC, based on floor area, headcount, transaction count, or cost drivers for example.

Annual Adjustment

Each year, businesses perform a “true-up” comparing actuals with the yearʼs provisional recovery. Over- or under-claimed VAT is corrected on the next return.

De Minimis Rule

If the exempt-related input tax is under £625 a month (or £7,500 a year) and not more than 50% of total input tax, you can reclaim it all, no partial restriction needed.

Property Developers and Investors

Partial exemption bites hard in property where developments can straddle taxable sales and exempt lets. The right PESM or group structure can mean the difference between six-figure recovery or permanent loss.

Practical Tip

Keep meticulous records linking each cost to its intended supply, plans, correspondence, and contracts all help demonstrate taxable intent if HMRC reviews your method.

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  

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