Deeks VAT Newsletter issue 55

Deeks VAT Newsletter issue 55 

Welcome to this Issue of Deeks VAT Newsletter    

March 2025 issue 55 

Keeping you up to date on VAT changes        

The Accountants VAT Club Launch 

We’re launching an exclusive community for accountants ready to master VAT and transform their practices. The Accountants VAT Club will provide premium resources, expert guidance, and four flexible membership tiers to suit your practice’s needs.  

Watch this space for updates!! Coming soon! 

In this month’s newsletter we cover the following: 

UTT Decision on Bolt Services UK Ltd 

HMRC v Innovative Bites Ltd and Duelfuel Nutrition Ltd  – Appeal Allowed 

MTIC Fraud Case: FTT Rules on Zero-Rating and Reverse Charge   

VAT Carousel Fraud: A Comprehensive Guide 2025 

VAT Invoices: Updated 2025 

Latest from the Courts 

Court of Appeal 

UTT Decision on Bolt Services UK Ltd  

In what is hopefully the first bit of good news in 2025 for TOMS, Bolt has won its appeal at the Upper Tribunal (UTT). The case concerned the provision of “on-demand” taxi services and questioned whether TOMS could apply to these services when provided by a business that was not itself a “tour operator” and when provided as a standalone service. It also revisited the concept of material alteration. 

Whilst we understand HMRC’s position (based on legislation from the 1980s), it is clear that an updated approach is required to reflect modern realities. 

Bolt provided “on-demand” taxi services similarly to Uber. Its drivers, all self-employed individuals, sold their services (including the car, fuel, and themselves as drivers) to Bolt for resale to the end-user. Bolt, in turn, functioned as a platform that facilitated bookings and provided minor ancillary materials such as an information guide and blog.  

HMRC argued that because Bolt was offering a single service and did not design tours, and because the timing and nature of “on-demand” journeys differed from those of a traditional tour operator, Bolt’s services could not fall within the scope of TOMS. HMRC also contended that Bolt materially altered the services, though it was unclear what specific changes it believed Bolt had made. 

The First-tier Tribunal (FTT)  

At the FTT, the Tribunal acknowledged that while the exact nature of Bolt’s services was not typically associated with a tour operator, a broader view was necessary. The Tribunal determined that Bolt’s services were still “comparable” to those offered by tour operators and could be substituted for them. The timing of the booking was deemed an irrational way to determine TOMS applicability (would a booking 2 hours in advance qualify while one made 1 hour 59 minutes prior would not?). 

HMRC’s argument about material alteration was vague but seemed to suggest that Bolt’s use of its technology platform to allow customers to select pick-up and drop-off points constituted a material alteration. The Tribunal largely dismissed this point, noting that the provision of ancillary services is a key requirement for TOMS under EU law. 

The Upper Tribunal (UTT) 

HMRC appealed to the UTT on several grounds, arguing that the FTT had not properly considered the nature and timing of the journeys and that ancillary services alone should not bring Bolt’s services within TOMS. The issue of material alteration was also raised again. 

The UTT pointed out that “tour operator” is not defined in law and that TOMS applies primarily based on the nature of services rather than the classification of the business. Restricting TOMS based on business classification would create competition distortions. Existing EU case law (such as those concerning school study programmes, hotels, chalets, and transport consolidators) supports a broad interpretation of TOMS. Notably, HMRC’s own VAT Notice states that “all” supplies of passenger transport can fall within TOMS, provided the other conditions are met. Consequently, the Tribunal agreed that a high-level approach was necessary. 

Nature vs Purpose  

HMRC argued that Bolt’s services, which included trips to supermarkets and business-related travel, differed from those provided by a tour operator. However, the Tribunal found that consumers choose between scheduled and on-demand transport based on various factors (convenience, price, and availability) and that the timing of a booking should not impact VAT treatment. 

Regarding material alteration, HMRC suggested that Bolt’s role in connecting drivers with customers constituted an in-house supply rather than a direct service. However, the Tribunal referenced the UTT’s decision in Sonder, which found that a materially different service was one where the nature of what was bought in and sold on had changed. In Bolt’s case, this was not applicable—the driver still provided the same transport service under proper licensing and regulation. 

As a result, the UTT dismissed HMRC’s appeal on all grounds. 

Implications  

This is a significant victory for Bolt and similar businesses. While it remains to be seen whether HMRC will appeal further, having lost twice, its chances appear limited. 

Although the wider implications of this decision are yet to be fully realised, we believe this ruling supports a pragmatic approach to TOMS. It highlights the need for laws and interpretations that align with modern business practices rather than outdated regulations from the 1980s. The notion that last-minute bookings are atypical for tourists is simply unrealistic in an era where virtually everything can be arranged instantly via digital platforms. 

A long-standing concern for taxpayers has been HMRC’s inconsistent application of TOMS, compounded by unclear guidance. This lack of clarity disadvantages businesses trying to apply the rules fairly while remaining competitive. Given HMRC’s unwillingness to engage in dispute resolution for TOMS cases, taxpayers are often left with no choice but to endure costly tribunal proceedings. This is neither fair nor sustainable. 

We welcome this ruling as a step towards a more practical and modern approach to TOMS. We also hope HMRC considers these Tribunal observations in its ongoing UK TOMS review. 

 
HMRC v Innovative Bites Ltd and Duelfuel Nutrition Ltd [2025] EWCA Civ 29 

The Court of Appeal has overturned previous decisions regarding the VAT treatment of “Mega Marshmallows,” in a case involving Innovative Bites Ltd and Duelfuel Nutrition Ltd. 

Case Background: 

• Product: “Mega Marshmallows” – larger than standard marshmallows, marketed for roasting 

• Initial ruling: Zero-rated (not considered confectionery) 

• HMRC position: Should be standard rated as confectionery 

Key Decision Points: 

The “Fingers Test” 

• Note 5 defines confectionery as including “any item of sweetened prepared food which is normally eaten with the fingers” 

• Previous tribunals failed to give appropriate weight to this crucial test 

Two Routes to Standard Rating: 

• Route 1: Is it confectionery by ordinary understanding? 

• Route 2: Is it sweetened prepared food normally eaten with fingers? 

Court’s Findings: 

• Rejected previous tribunals’ approach 

• Highlighted importance of the “fingers test” 

• Questioned whether size and intended use (roasting) should affect classification 

• Case remitted to FTT to specifically consider how the product is normally eaten 

Practical Implications: 

This ruling emphasises that VAT classification of confectionery must consider: 

• The “fingers test” as a key determinant 

• Ordinary understanding of confectionery 

• Actual consumption method 

Full decision: https://www.bailii.org/ew/cases/EWCA/Civ/2025/293.html 

MTIC Fraud Case: FTT Rules on Zero-Rating and Reverse Charge 

The First-tier Tribunal (FTT) has issued a significant ruling in RS Global Ltd and Agarwal v HMRC, concerning mobile phone sales to EU companies and alleged MTIC fraud. 

Case Summary: 

•     Company: RS Global Ltd 

•     Issue: Zero-rating denial on EU mobile phone sales 

•     Additional: Personal liability notice against director Mr Agarwal 

•     Type: Missing Trader Intra Community (MTIC) fraud investigation 

The Appellants’ Two Key Arguments: 

1. Fraud Evidence Challenge 

•     Claimed HMRC couldn’t prove fraud connection 

•     FTT found HMRC had reasonable prospect of proving case 

•     Full investigation deemed necessary 

•     Application to dismiss rejected 

2. VAT Liability Argument 

The appellants presented two scenarios: 

•     If HMRC failed to prove fraud – sales would be zero-rated 

•     If HMRC succeeded – domestic reverse charge would apply 

•     Either way, they argued no VAT liability would exist 

FTT’s Decision: 

•     Dismissed both arguments 

•     Confirmed VAT liability remains with RS Global 

Found domestic reverse charge (s. 55A) not applicable because: 

•      Would undermine Mecsek principle anti-fraud measures 

•      Customers were outside UK jurisdiction 

•      Goods maintained zero-rated status for s. 55A purposes 

Impact: 

•     Reinforces HMRC’s authority in MTIC fraud cases 

•     Clarifies interaction between Mecsek principle and reverse charge 

•     Confirms VAT liability remains with UK seller in EU sales 

Full decision: https://caselaw.nationalarchives.gov.uk/ukftt/tc/2025/332 

VAT Carousel Fraud: A Comprehensive Guide 2025   

VAT carousel fraud, also known as missing trader fraud or missing trader intra-community (MTIC) fraud, is a complex and highly sophisticated criminal scheme defrauding governments of VAT revenue. Post-Brexit, these schemes have evolved, expanding beyond Europe into South East Asia and digital markets.  

Detailed Mechanism:  

The fraud operates through a series of transactions where goods are repeatedly bought and sold across borders. The criminal acquires goods VAT-free (as exports are tax-free) and resells them with VAT added. The fraudster then vanishes or closes the business without paying the collected output tax to authorities.  

Round and Round Process:  

• Transactions typically B2B rather than B2C  

• Creation of multiple shell companies to obscure operations  

• Continuous trading between shell companies (carousel effect)  

• Same goods potentially traded multiple times  

• Often involves fictitious transactions with false invoices  

• Frequently funded by proceeds from other criminal activities  

Impact on Legitimate Businesses 

Innocent businesses can become unwitting participants, facing:  

• Denied input tax claims  

• HMRC investigations  

• Reputational damage  

• Financial losses  

• Legal complications  

The Kittel Principle 

Based on the CJEU case (Axel Kittel & Recolta Recycling SPRL C-439/04 and C-440/04):  

• Input tax claims can be denied if the business knew/should have known about fraud  

• Applies even to indirect participation in fraudulent supply chains  

• Burden of proof on businesses to demonstrate due diligence  

Essential Due Diligence 

Comprehensive verification must include:  

1. Business Partner Checks:  

• Company registration details  

• Trading history  

• Credit ratings  

• Director backgrounds  

• Bank account verification  

2. Transaction Verification:  

• Market price comparison  

• Supply chain legitimacy  

• Payment terms review  

• Delivery documentation  

• Insurance coverage  

HMRC Investigation Process 

• Formal investigations under Public Notice 160  

• Focus on suspected dishonest conduct  

• Particularly relevant for high-value VAT cases  

• Immediate legal representation advised  

• Serious consequences including criminal prosecution  

Reverse Charge (RC) Mechanism 

Current application to:  

• Mobile telephones  

• Computer chips  

• Emissions allowances  

• Construction services  

• Specific high-risk sectors  

Future Developments 

• Enhanced digital reporting requirements  

• Real-time transaction monitoring  

• Blockchain verification systems  

• AI-powered fraud detection  

• Cross-border cooperation frameworks 

VAT Invoices: Updated 2025 

VAT invoicing remains a critical aspect of business compliance. As a transaction-based tax, proper documentation is essential, and HMRC can reject input tax claims based on incorrect invoices. This updated guide reflects current UK regulations, including post-Brexit changes.  

Legal Requirements for VAT Invoices & When Must You Issue a VAT Invoice?  

A VAT-registered business must provide an invoice when:  

• Making taxable supplies to another VAT-registered business  

• Receiving advance payments  

• Making certain international supplies (post-Brexit rules apply)  

Key Exceptions:  

• Business entertainment expenses  

• Private use of goods  

• Second-hand goods under special schemes  

• Tour Operators’ Margin Scheme (TOMS)  

• Self-billing arrangements  

• Retail sales (unless requested)  

• Intra-VAT group supplies  

Essential Invoice Elements:  

1. Unique sequential number  

2. Supply date (tax point)  

3. Issue date  

Supplier’s details:  

1. Name  

2. Address  

3. VAT registration number  

5. Customer’s details:  

4. Name  

5. Address  

6. Clear description of goods/services  

For each item:  

1. Quantity/extent  

2. Unit price  

3. VAT rate  

4. Amount excluding VAT  

8. Total amount excluding VAT  

9. Cash discount rate (if applicable)  

10. VAT amount in sterling  

Special Considerations 

Simplified Invoices:  

Retailers can issue simplified invoices for supplies under £250 (including VAT), showing:  

• Business details and VAT number  

• Date of supply  

• Description of goods/services  

• Total amount with VAT  

• VAT rate applied  

Electronic Invoicing:  

• Now widely accepted  

• Must ensure authenticity and integrity  

• Should be stored securely with proper audit trail  

Post-Brexit Updates:  

• References to “EC country” now changed to “international”  

• New rules for exports and imports  

• Windsor Framework considerations  

• Updated reverse charge mechanisms  

Alternative Evidence:  

HMRC may accept alternative evidence for input tax claims in specific circumstances, but this should not be relied upon as standard practice.  

Common Pitfalls to Avoid:  

1. Missing sequential numbers  

2. Incorrect VAT calculations  

3. Incomplete business details  

4. Wrong tax point dates  

5. Missing VAT registration numbers  

Best Practices:  

• Maintain robust invoicing systems  

• Regular staff training on requirements  

• Keep copies for at least 6 years  

• Regular review of compliance  

• Consider automated solutions  

Penalties:  

HMRC can impose penalties for non-compliant invoicing. These may include:  

• Percentage-based penalties  

• Fixed penalties for specific breaches  

• Interest charges 

We hope you found this newsletter informative. For any VAT or TAX Enquiries contact:   

Jane Deeks, Managing Director   

 jane@deeksvat.co.uk   

 07710553831