Hello and welcome to Issue 80 from Jane

This issue has a very clear theme: VAT disputes are usually won or lost on the evidence long before anyone reaches the Tribunal.

HMRC’s new VAT Assist API points in the same direction. It is still only in alpha testing, but it is designed to let compatible software send draft VAT-return data to HMRC and receive feedback before the return is formally submitted. That could move HMRC intervention further upstream, from checking a filed return to questioning a draft one.

At the other end of the process, Massala Exotic shows what happens when the necessary evidence is not produced at the First-tier Tribunal. The Upper Tribunal is there to address errors of law. It is not a second evidential dress rehearsal.

We also cover the temporary zero rate for domestic electricity, claims by overseas VAT-group members, education supplied by alternative providers and the rather less ordinary question of recovering £477,508.60 of VAT on a hypercar.

There is plenty to get through, so let us begin.

Jane

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VAT News Round Up

HMRC VAT Assist moves into alpha testing

HMRC updated its Developer Hub on 18 September 2026 to introduce the VAT Assist MTD API in alpha testing.

The API allows compatible software to send draft VAT-return data to HMRC without formally submitting the return. HMRC can then return feedback, and the software must acknowledge that the feedback has been presented verbatim to the user.

There is no immediate change to the legal filing requirements and no action is presently required from ordinary taxpayers. Alpha access is directed at software developers using HMRC’s sandbox environment.

The longer-term direction is nevertheless important. VAT compliance may increasingly begin before submission. If HMRC prompts appear against an unusual but correct VAT treatment, advisers will need a process for assessing the message, preserving it and documenting why the return position remains supportable.

Jane’s view: This could be helpful where it prevents genuine mistakes. The difficulty will be ensuring that an automated warning does not become a substitute for legal analysis. A computer may spot an unusual number; it cannot always spot an unusually complicated property transaction.

Read HMRC’s VAT Assist API overview

HMRC Updates

Temporary zero rate for domestic electricity

Revenue and Customs Brief 10 2026 confirms that qualifying supplies of electricity in Great Britain will be zero-rated from 1 October 2026 to 31 March 2027.

• The measure applies in England, Scotland and Wales.
• Qualifying domestic use and a charity’s qualifying non-business use are included.
• Other fuel types are not affected.
• Northern Ireland remains subject to the reduced rate of 5%.
• Where a billing period straddles 1 October, HMRC recommends meter readings, although another fair and reasonable method may be used.

Practical point: suppliers should preserve the basis on which consumption is split across the rate change and ensure later credits or corrections follow the treatment of the original supply.

Overseas VAT refunds for VAT group members

Revenue and Customs Brief 8 2026 changes the claims process for non-UK businesses that belong to a VAT group in their country of establishment.

Each eligible group member must now claim separately for UK VAT that it incurred. HMRC will no longer accept a claim from the representative member unless that representative member incurred the VAT.

For the prescribed year from 1 July 2025 to 30 June 2026, HMRC will accept a claim from either the member that incurred the VAT or the representative member. The filing deadline is 31 December 2026.

Businesses whose claims were refused from 1 January 2021 because the representative member did not submit them may ask HMRC to reconsider, provided the VAT was not included in a later claim. The request must reach HMRC by 31 August 2027.

Practical point: groups should identify who incurred the cost, who holds the invoice and whether the same VAT has appeared in any later claim. Group status does not turn an invoice addressed to one legal entity into everybody’s invoice.

Alternative providers of higher and further education

Revenue and Customs Brief 9 2026 follows the Court of Appeal’s decision in St Patrick’s International College and Others Ltd v HMRC [2026] EWCA Civ 852.

The Court of Appeal held that some education supplied by organisations that were not eligible bodies could nevertheless be exempt. HMRC has permission to appeal to the Supreme Court and continues to state that education supplied by a non-eligible body is standard-rated under its long-standing policy.

Alternative providers that consider themselves to be in the same position as St Patrick’s may submit protective claims. HMRC says it will consider each claim case by case, including unjust enrichment, partial exemption, supply-chain accounting and previously recovered input tax.

Jane’s view: this is not a gross-output-tax exercise. Any claim must model the input-tax and partial-exemption consequences as well as the customer and unjust-enrichment position.

If you wish to submit protective claim, please do not hesitate to contact us.

Case Law Updates

Luxurico Ltd V HMRC  [2026] TC10001 and the luxury hire vehicle VAT claim

Luxurico Ltd operated a luxury vehicle hire business and claimed £477,508.60 of input VAT on the importation and acquisition of a hypercar in November 2020.

The normal input-tax block for motor cars did not apply if, at acquisition, the company intended to use the vehicle primarily for a relevant purpose, including self-drive hire or hire with a driver.

HMRC relied on limited completed hires, incomplete mileage records, gaps in insurance evidence and social-media material suggesting a personal connection with the vehicle. Luxurico pointed to commercial interest before importation, anticipated bookings, hire-specific insurance and marketing material. It also explained that Covid restrictions, mechanical failures and a serious accident had disrupted actual hiring activity.

The FTT allowed the appeal. The statutory question concerned the objective intention when the VAT was incurred. Later events could provide evidence of that intention, but disappointing commercial performance did not retrospectively change it.

Jane’s view: enthusiasm for the asset did not prevent a business purpose, but the taxpayer still needed objective evidence. A glossy social-media feed is not automatically private use; equally, calling a car a marketing asset will not perform the miracle by itself.

If you are planning to acquire high-value vehicles or other major business assets, we can help assess the VAT treatment and ensure appropriate evidence is retained to support any future claim.

Minerva Research Labs v HMRC [2026] UKFTT 1320 and collagen drinks

The FTT rejected Minerva Research Labs Limited’s argument that its collagen drinks were zero-rated food.

The Tribunal’s multi-factorial assessment placed significant weight on how the products were marketed and consumed. They were promoted as liquid beauty products and bought for cosmetic or anti-ageing reasons, not as meals or snacks. References to doses, treatment, precautions and warnings also pointed away from ordinary food.

Minerva’s appeal was dismissed, and HMRC’s refusal to refund about £3.64 million of output tax was upheld.

Practical point: product ingredients matter, but presentation, packaging, marketing and the ordinary purpose for which customers buy the product can be decisive.

ITS Plant Tech v HMRC [2026] UKFTT 1299 (TC); was there really a taxable supply of labour?

The FTT dismissed ITS Plant-Tech Ltd’s appeal because the company failed to establish that it had received taxable supplies of labour from MP Screeding Ltd and ITS Payroll Ltd.

The central issue was whether ITS Plant-Tech’s workers had genuinely ceased to be its employees and become employees of either of the other companies. If responsibility for the employees had transferred, the amounts invoiced for wages and employer’s National Insurance contributions could potentially have formed part of the consideration for a taxable supply of staff or labour back to ITS Plant-Tech.

However, the evidence indicated that the arrangement amounted to the outsourcing of payroll administration rather than a genuine transfer of employees. The practical relationship between ITS Plant-Tech and its workforce had not materially changed, and ITS Plant-Tech continued to pay the workers’ net wages, salaries and training costs directly from its own bank account.

The burden was on ITS Plant-Tech to prove, on the balance of probabilities, that the other companies had supplied labour to it. It failed to do so. The wages and employer’s National Insurance contributions therefore remained ITS Plant-Tech’s own employment costs and were not consideration for taxable supplies received from the other companies.

The practical lesson

An invoice charging VAT does not, by itself, establish an entitlement to input tax. The taxpayer must be able to demonstrate the commercial reality behind the invoice, including the identity of the supplier, the nature of the supply and the contractual and practical arrangements under which it was made. Where staff or employment arrangements are restructured, the evidence must show more than payroll being processed through another company. HMRC and the Tribunal will look at who remained the employer in substance.

In Sagar, the FTT considered costs after HMRC withdrew decisions under appeal. The Tribunal awarded costs in one appeal where HMRC’s conduct was unreasonable, including its handling of material already in its possession, but refused costs in the other. Applications for indemnity and wasted costs were also refused.

Practical point: a taxpayer does not obtain costs merely because HMRC ultimately withdraws. The focus is on how the proceedings were conducted and whether the relevant conduct crossed the threshold of unreasonableness.

Feature Article

Massala Exotic Limited and Khosru Miah v HMRC [2026] UKUT 00355 TCC and the evidence you only get one proper chance to produce

This case is formally a permission-to-appeal decision. Its practical message is much larger than that procedural label suggests:

An appeal is not an opportunity to have another go with the evidence you should have produced the first time.

The assessment and penalties

Massala Exotic Limited operated an Indian restaurant. HMRC concluded that it had underdeclared takings for VAT periods 09/13 to 09/19 and raised a best-judgment VAT assessment of £280,903.

HMRC also imposed a deliberate penalty of £176,966.37, representing 63% of the VAT assessed, and issued a personal liability notice to the director, Mr Miah. The FTT upheld the assessment, penalty and personal liability notice.

HMRC repeated the same turnover figure

For the earlier periods, HMRC had merchant-acquirer data showing card receipts. Equivalent data was not available after June 2016.

HMRC therefore took the last evidenced expected gross-sales figure of £240,780.56 and repeated it for each later quarter until September 2019. That produced the same quarterly VAT assessment of £11,236.43 for approximately three years.

The taxpayer argued that the method ignored seasonality, changing trading conditions, declining sales and the eventual closure of the restaurant. The Upper Tribunal nevertheless found no arguable error of law in the FTT’s conclusion that the assessment had been made to best judgment.

Best judgment does not mean perfect reconstruction

HMRC had started with empirical merchant-acquirer evidence and used the latest supported figure for periods where equivalent information was unavailable. It had not uplifted the figure for inflation, which the FTT considered favourable to the taxpayer.

A best-judgment assessment must be a genuine and reasoned attempt to calculate the VAT due. It need not recreate the business’s actual turnover perfectly.

That creates a practical burden for the taxpayer. Saying that HMRC’s estimate looks crude is not the same as proving that it overcharges. The stronger response is an evidenced alternative calculation.

If turnover declined, prove it

The Upper Tribunal noted that documentary evidence had not been produced before the FTT to show that turnover declined or varied after 2016.

In a restaurant, retail or other cash-intensive business, the evidential package might include:

• merchant-acquirer statements and bank statements
• till or EPOS reports
• Deliveroo, Just Eat or Uber Eats reports
• records of closures or reduced opening hours
• staffing records showing reduced trading capacity
• menu and pricing changes
• management accounts and contemporaneous forecasts
• an alternative period-by-period turnover calculation

The failed attempt to introduce fresh evidence

Mr Miah later sought to rely on further material, including bank statements and a witness statement explaining the card-machine arrangements.

The Upper Tribunal refused to admit the fresh evidence. The appellants had already been told during the FTT proceedings that they lacked documentary and witness evidence. Mr Miah had been given a proper opportunity to provide a statement and attend the hearing.

The HSBC statements did not rescue the position. If replacement statements were required, they could have been obtained from the bank. If HMRC held relevant copies, the appellants could have asked the FTT to direct disclosure. Neither course had been pursued in time.

Why the Upper Tribunal said no

An appeal from the FTT to the Upper Tribunal is an appeal on a point of law. It is not ordinarily a rehearing of the evidence or an opportunity to rebuild the factual case after discovering why it failed.

Fresh evidence may sometimes be admitted, but the hurdle is deliberately high. A central question is whether the material could, with reasonable diligence, have been obtained and used at the original hearing. In Massala Exotic, much of it was already available or obtainable.

The practical lesson

Before an FTT hearing, identify every fact the Tribunal must accept for the taxpayer to succeed. Then identify the document or witness that proves each fact.

If the case depends on two card machines belonging to other businesses, prove the merchant contracts, bank flows and accounting treatment. If receipts in one account belonged to another business, trace them. If turnover fell, quantify the decline period by period.

A carefully drafted skeleton argument cannot fill an evidential hole. By the time the case reaches the Upper Tribunal, the opportunity to prove the underlying facts may already have passed.

Practical VAT Tip from Jane

Create an evidence map as soon as a material HMRC dispute begins.

• List each factual proposition needed for the case to succeed.
• Identify the document, data source or witness that proves it.
• Record any gaps and who is responsible for filling them.
• Reconcile the taxpayer’s alternative calculation to VAT returns and accounts.
• Do not wait for the hearing bundle before discovering that the bank statements are missing.

This discipline is useful even where the dispute settles. Evidence has a habit of becoming harder to obtain at exactly the moment it becomes most valuable.

Ask Jane

Can a crude HMRC estimate still be best judgment

Not necessarily.

The test is not whether HMRC’s figure is elegant or perfectly accurate. The question is whether HMRC made an honest and genuine attempt, using the information available, to reach a reasonable estimate rather than an arbitrary one.

A challenge becomes much stronger when it says: HMRC’s figure is excessive by £X, here is the period-by-period calculation, and here are the records proving it.

Closing Remarks

Issue 80 begins with draft VAT returns and ends with an Upper Tribunal appeal, but the same principle runs through both: evidence should be assembled when the decision is made, not after the position has unravelled.

HMRC’s systems may soon ask questions earlier. The Tribunal will continue to ask what was proved. In between sits the taxpayer’s file; which is why contemporaneous records remain the least glamorous and most dependable part of VAT risk management.

If you or a client would like help reviewing a VAT position or preparing for an HMRC dispute, contact jane@deeksvat.co.uk.