Deeks VAT Newsletter issue 56

Deeks VAT Newsletter issue 56

Welcome to this Issue of Deeks VAT Newsletter   

April 2025 issue 56

Keeping you up to date on VAT changes    

In this month’s newsletter we cover the following:

Tax Tribunal Update: Heaven Dry Cleaners Ltd v HMRC [2025] UKFTT 781 (TC)

Three Shires Trailers Limited v HMRC [2024] TC09044

VAT reverse charge for building and construction services – new HMRC manual

VAT Import One Stop Shop (IOSS): Is Your Business Eligible?

Capital Goods Scheme

VAT Myths in International Trade: Why Trump Got It Wrong

Plastic Packaging Tax Update: Rate Increase for 2025

Understanding Community Infrastructure Levy (CIL)  

Latest from the courts:

Late Appeals and Procedural Pitfalls: When HMRC’s Mistakes Don’t Guarantee Victory

Tax Tribunal Update: Heaven Dry Cleaners Ltd v HMRC [2025] UKFTT 781 (TC)

The First-tier Tribunal (FTT) has recently delivered its judgment in Heaven Dry Cleaners Ltd v HMRC, addressing multiple applications for late appeals concerning corporation tax and VAT matters. This case provides valuable insights into the procedural aspects of tax appeals and HMRC’s review process.

Procedural Oversights

The tribunal discovered significant procedural oversights by HMRC. The revenue had failed to notify Heaven Dry Cleaners of their review outcome regarding corporation tax penalties and had overlooked a request for review concerning the VAT registration decision. Consequently, the tribunal determined these appeals were not, in fact, late as the appeal deadlines had not commenced.

Corporation Tax Appeal

The application for late appeal against corporation tax assessments was denied. The tribunal found the delay both serious and significant, with no substantive explanation provided. Documentation revealed the company’s initial decision against appeal stemmed from financial constraints, specifically the inability to pay the corporation tax liability or afford Creditors Voluntary Liquidation fees.

VAT Assessment

While the tribunal initially permitted a late appeal against the VAT assessment, this appeal was subsequently struck out. The reasoning centred on a fundamental jurisdictional issue: without a filed VAT return, the tribunal lacked jurisdiction under section 83(1)(p) VATA94 to consider the appeal’s merits.

Key Implications

This decision reinforces several crucial principles:

• Procedural errors by HMRC can affect appeal deadlines
• Financial difficulties alone do not justify appeal delays
• Basic compliance requirements, such as filing returns, remain fundamental to the appeal process
• The tribunal’s jurisdiction is strictly limited by legislation

VAT Recovery on Land Rovers: Key Tribunal Decision

Three Shires Trailers Limited v HMRC [2024] TC09044

In a significant ruling for businesses operating commercial vehicles, the First-tier Tribunal (FTT) has allowed input VAT recovery on two Land Rover Discovery vehicles, even after their conversion into cars. This case provides valuable clarity on VAT recovery for modified vehicles.

Case Background

• Three Shires Trailers Limited (TSTL) purchased two Land Rover Discovery vehicles for business purposes
• Initial purchase: Vehicles configured as commercial vehicles
• Subsequent modification: Addition of fold-up seats and clearing of blacked-out windows
• Input VAT claim: £37,500

HMRC’s Position

Initially, HMRC disallowed the input VAT recovery completely. Following a statutory review, they:

• Accepted the initial input VAT recovery
• Attempted to charge output VAT on the conversion as a self-supply

The Tribunal’s Decision

The FTT made several important determinations:

1. Initial Status

• Vehicles were commercial at purchase
• Input VAT was correctly recoverable

2. Post-Modification Status

• Vehicles became “motor cars” after modification
• Qualified as “qualifying motor cars” under Article 7
• No self-supply charge arose under Article 5

Key Principles Established

• Adding rear seats and clearing windows converts a commercial vehicle to a car
• “Qualifying motor cars” status prevents self-supply charges
• Business-only usage remains crucial for VAT recovery

Implications

This decision offers valuable guidance for businesses considering vehicle modifications. It confirms that VAT recovery can be maintained when:

• Vehicles are initially commercial
• Modifications serve legitimate business purposes
• Vehicles remain in exclusive business use

HMRC UPDATES

VAT reverse charge for building and construction services – new HMRC manual

HMRC has published its VAT Reverse Charge for Building and Construction Services Manual. The Manual sets out the scope of the construction reverse charge—including which services are caught, the treatment of materials, and the distinction between labour and staff. It also explains how the reverse charge operates, covering who must apply it and practical matters such as invoicing and adjustments to consideration. Compliance aspects are also addressed.

VAT Import One Stop Shop (IOSS): Is Your Business Eligible?

Simplify your EU and Northern Ireland VAT obligations on low-value imports with IOSS registration. This streamlined system helps businesses manage VAT on consumer goods valued up to €150.

What’s New:

• Updated guidance on using your IOSS VAT ID for imports
• Simplified reporting process for EU and NI sales
• Clear instructions for registration eligibility

Key Benefits:

• Single VAT registration for multiple EU countries
• Streamlined reporting and payment process
• Faster customs clearance for your shipments

Capital Goods Scheme

HMRC have finally proposed an increase to the £250k CGS threshold for property, and the removal from the Scheme of computers and computer equipment.

The current threshold of £250k was set in 1990, without any consideration for inflation over the last 35 years. In 2017, the Office of Tax Simplification (OTS) reviewed the CGS and noting that that Consumer Price Index had grown by 200% between 1990 and 2017 and the nominal GDP had increased by 300%.

In line with this it has been proposed that the new CGS threshold will be increased to anywhere between £600k and £1 million.

The proposed changes are still in the early stages.

VAT

VAT Myths in International Trade: Why Trump Got It Wrong

Recent headlines have highlighted confusion about VAT following claims that it acts as a tariff against US companies. Let’s clear up this misconception and explore why VAT and tariffs are fundamentally different.

Understanding Tariffs

A tariff is a tax specifically imposed on imported goods, designed to protect domestic industries by making foreign products more expensive. It’s a direct cost that cannot be recovered and only applies to imports – not domestic goods.

VAT: A Different Beast

VAT (Value Added Tax) operates entirely differently:

• Applies equally to all businesses, domestic and foreign
• Can be recovered by VAT-registered businesses
• Ultimate cost falls on the final consumer, not businesses
• Neutral in international trade when properly managed

Why the Confusion?

Some US businesses experience VAT as a cost because they:

• Don’t register for VAT in countries where they operate
• Miss opportunities to reclaim VAT
• Face challenges in specific jurisdictions with reciprocity requirements

The Reality Check

While VAT can become a cost for unprepared US businesses, this isn’t due to discriminatory treatment. Rather, it stems from:

• Lack of understanding of VAT systems
• Failure to implement proper VAT recovery procedures
• Not seeking professional guidance before entering new markets

Solutions Available

US businesses can avoid VAT becoming a cost by:

• Registering for VAT where required
• Using available refund mechanisms
• Planning supply chains effectively
• Seeking expert advice before international expansion

Key Takeaway

VAT is not a tariff – it’s a consumption tax that should be neutral for businesses when managed correctly. With proper planning and compliance, international traders can ensure VAT doesn’t become an unnecessary cost.

Plastic Packaging Tax Update: Rate Increase for 2025

Latest Rate Change

The Plastic Packaging Tax (PPT) rate has increased from £217.85 to £223.69 per tonne, effective 1 April 2025. Businesses must update their reporting software to ensure accurate tax collection.

Historical Rate Progression

PPT was introduced on 1 April 2022, with rates increasing annually in line with CPI:

• 1 April 2022: £200 per tonne
• 1 April 2023: £210.82 per tonne
• 1 April 2024: £217.85 per tonne
• 1 April 2025: £223.69 per tonne

Scope and Application

The tax applies to businesses that:

• Manufacture plastic packaging in the UK
• Import plastic packaging components
• Import packaged goods containing plastic packaging

Tax Categories

Two main categories are subject to PPT:

1. Supply Chain Packaging: Used within business operations
2. Consumer Single-Use Packaging: Designed for end-user consumption

Important Note: Multi-component packaging requires separate tax calculations for each plastic element. Packaging containing 30% or more recycled plastic is exempt.

Registration Requirements

Businesses must register for PPT when they:

• Have manufactured/imported 10+ tonnes of finished plastic packaging in the last 12 months
• Expect to reach this threshold in the next 30 days

This includes non-resident taxpayers operating in the UK market.

Record-Keeping Requirements

Essential records must include:

Manufacturing and Import Records

• Weight breakdown of finished components per period
• Export weights where tax was deferred
• Product line specifications

Tax Adjustments

• Export credit claims
• Conversion into new components
• Previous period corrections with dates
• Accounting period references

Compliance Actions

Even with recycled content exemption (30%+), businesses must:

1. Register for PPT
2. Submit regular returns
3. Provide recycled content documentation
4. Maintain detailed product line records

Next Steps for Businesses

1. Review product portfolio for plastic packaging qualification
2. Assess registration requirements against threshold
3. Establish data collection systems
4. Communicate with supply chain partners about tax obligations

Understanding Community Infrastructure Levy (CIL)  

The Community Infrastructure Levy (CIL) is a crucial planning charge introduced by the Planning Act 2008 as a tool for local authorities in England and Wales to support development in their area. This complex levy helps fund essential infrastructure needed as a result of development, and professional guidance is often necessary to navigate its requirements effectively. 

How CIL Works 

Local authorities can choose to charge CIL on new developments in their area. The levy applies to most new buildings and extensions over 100 square metres of gross internal floor space, or when creating a new dwelling of any size. The specific rates and requirements vary by location and development type, making professional assessment crucial. 

Key Features of CIL: 

Non-negotiable charge that varies by local authority Based on multiple factors including size, location, and type of development Payable on commencement of development Subject to regular updates and indexation Requires expert calculation and timing consideration 

Who Needs to Pay CIL? 

CIL may be payable on development that creates net additional floor space, where the gross internal area of new build exceeds 100 square metres. This includes: 

New buildings Extensions to existing buildings Conversions of existing buildings Change of use developments 

Notable Exemptions: 

• Self-build housing  
• Social housing  
• Charitable developments Extensions under 100 square metres  
• Buildings people do not normally go into 
• Important Deadlines and Procedures 

Before commencing development, developers must: 

• Submit a CIL Assumption of Liability form  
• Provide a Commencement Notice  
• Submit relevant exemption claims if applicable  
• Seek professional advice on timing and liability 

Professional guidance is essential as missing deadlines or incorrect submissions can result in significant penalties. 

Consequences of Non-Compliance 

Failing to follow CIL procedures can result in serious consequences: 

• Substantial surcharges  
• Late payment interest  
• Enforcement action 
•  Stop notices  
• Legal proceedings 

Strategic Considerations for Developers 

When planning a development, consider: 

• Early engagement with CIL specialists  
• Professional assessment of liability  
• Evaluation of potential exemptions and relief  
• Strategic timing of development phases Impact on overall project costs 

The Benefits of CIL 

CIL contributes to: 

• Local infrastructure improvements  
• Community facilities  
• Transport networks  
• Educational facilities  
• Healthcare provision Green spaces 

Recent Updates and Changes 

The government has introduced several reforms to make the system more transparent: 

• Updated indexation methods  
• Reformed appeal procedures  
• Clearer exemption processes  
• Enhanced enforcement powers 

Best Practices for Compliance 

To ensure smooth CIL management: 

Engage professional advisors early Maintain comprehensive records Submit all forms on time Keep clear communication channels with authorities Follow expert guidance on timing and procedures 

Understanding CIL is essential for anyone involved in property development in the UK. While the basic principles are straightforward, the detailed calculations, timing considerations, and compliance requirements make professional guidance invaluable. Our team of experts can help you navigate the complexities of CIL, ensuring compliance while optimising your position. 

The Community Infrastructure Levy (CIL) isn’t just another tax – it’s a crucial planning charge that could significantly impact your development costs.  

We hope you enjoyed this months newsletter.

For any VAT or TAX Enquiries contact:   

Jane Deeks, Managing Director   

 jane@deeksvat.co.uk   

 0771055383