Deeks VAT Newsletter

This issue covers the period from 10 March to 31 March 2026.

Welcome to Issue 73 of the Deeks VAT Newsletter.

The theme this month is simple: VAT still rewards preparation and punishes assumptions.

That is particularly true for property, education funding, deregistration and supplies where the VAT liability depends on facts, contracts and evidence.

As always, the aim is to make complex VAT simple.

VAT News Round-up

Court of Appeal decision in Colchester Institute Corporation

The most significant VAT development in this period was the Court of Appeal decision in HMRC v Colchester Institute Corporation [2026] EWCA Civ 363, released on 27 March 2026.

The issue was whether certain public funding received by a further education institution was outside the scope of VAT as grant funding, or whether it was consideration for supplies of education.

HMRC’s VAT appeals update records that HMRC’s appeal was dismissed and that HMRC is not seeking permission to appeal.

HMRC later confirmed in Revenue and Customs Brief 3 (2026) that the judgment concerned public funds received by further education institutions to fund free education for eligible students. HMRC stated that the Court of Appeal concluded the funding was paid in consideration for delivering approved courses, rather than merely general support.

Why this matters

This is important beyond the education sector.

VAT treatment often turns on whether money is:

• a grant outside the scope of VAT; or
• consideration for a supply.

That distinction affects VAT liability, input tax recovery and contractual pricing.

Jane’s view: whenever funding is received, the starting point should not be “Is it called a grant?” The real question is: what is the payer receiving in return?

Tribunal Watch

Innovative Bites Ltd — food VAT classification

HMRC’s VAT appeals update records that Innovative Bites Ltd [2026] UKFTT 00500 (TC) was decided on 31 March 2026, with the taxpayer’s appeal allowed. HMRC is not seeking permission to appeal.

This case sits within the long line of food VAT classification disputes.

Earlier proceedings in the Innovative Bites litigation concerned the VAT treatment of “Mega Marshmallows” and whether they were confectionery or zero-rated food. The Upper Tribunal material records that the FTT had allowed the taxpayer’s appeal against HMRC’s decision that the product was standard-rated confectionery.

Practical lesson

Food VAT cases may look amusing from the outside — cakes, marshmallows, biscuits and bars do have a habit of keeping VAT advisers entertained — but the commercial point is serious.

A VAT liability decision can affect:

• retail pricing;
• margins;
• historic VAT exposure;
• product packaging;
• marketing;
• evidence;
• future product development.

The lesson is simple: VAT liability should be considered before a product is launched, not after HMRC asks questions.

HMRC Updates

VAT Notice 700/11 — cancelling VAT registration

HMRC updated VAT Notice 700/11: Cancelling your VAT registration on 31 March 2026.

The update added a link to information to help businesses tell HMRC about an Option to Tax before cancelling VAT registration.

Why this matters

This is a small guidance update, but it has a very practical property VAT message.

If a business has opted to tax a property and later cancels its VAT registration, the Option to Tax does not simply become irrelevant.

Property owners must consider:

• whether the Option to Tax remains in place;
• whether HMRC must be notified;
• whether future rental income or sale proceeds may still be affected;
• whether deregistration creates output tax issues;
• whether assets are still held on which VAT was recovered.

Jane’s view: VAT deregistration should never be treated as a quick admin job where property is involved. Property VAT has a long memory.

Property VAT Spotlight

Option to Tax before VAT deregistration

The 31 March 2026 update to VAT Notice 700/11 is a useful reminder that businesses should review property VAT before cancelling a VAT registration.

An Option to Tax can be extremely valuable. It can allow VAT recovery on costs relating to commercial property. But it can also create traps where a business later sells, leases, transfers or deregisters.

Common mistakes

Businesses often:

• forget they opted to tax years ago;
• fail to keep the HMRC acknowledgement;
• assume deregistration cancels the Option to Tax;
• do not consider VAT on retained property assets;
• fail to review Capital Goods Scheme adjustments;
• forget to tell purchasers or tenants about the VAT position.

Practical action point

Before deregistering for VAT, check:

1. Do you own or lease commercial property?
2. Has an Option to Tax been made?
3. Has VAT been recovered on property costs?
4. Is the property still used in the business?
5. Could output VAT be due on deregistration?
6. Is the Capital Goods Scheme relevant?
7. Have all records been retained?

VAT Risk Rating: 🔴 High Risk where commercial property is involved.

Option to Tax: Five Costly Mistakes I Still See Every Month

Property VAT is one of the most misunderstood areas of VAT.

The rules are technical, the amounts involved are often substantial and the commercial consequences can be painful.

At the centre of many property VAT issues is the Option to Tax.

In simple terms, most sales and lettings of commercial property are exempt from VAT. That means no VAT is charged, but it can also mean that VAT on related costs cannot be recovered.

An Option to Tax changes that position. Once a valid Option to Tax has been made and notified to HMRC, supplies of that property will generally become taxable at the standard rate.

That can be extremely useful. It can allow input tax recovery on property costs, professional fees, refurbishment costs and development expenditure.

But it can also create significant problems if it is misunderstood.

Mistake 1: Assuming the Option to Tax applies to the land not the owner

An Option to Tax is made by a person in relation to land or buildings. It applies to that person’s interest in the land. It does not simply float around vaguely in the background.

Some people think that if a property has been opted to tax it applies to the property and if they obtain an opted property, there is nothing they need to do. We see this a lot and it creates a lot of problems and can be very costly.

You need to know:

• who made the option;
• exactly what land or buildings it covers;
• when it was made;
• whether it was validly notified;
• whether any anti-avoidance rules apply.

This matters particularly where property is held in groups, pension schemes, partnerships or property companies.

If the wrong person has opted, or the option does not cover the correct land, the VAT analysis may be completely different.

Mistake 2: Not keeping evidence

This is one of the biggest practical problems.

A business may have opted to tax years ago, recovered VAT on costs and charged VAT on rent, but cannot find the paperwork.

That creates problems on:

• sale;
• refinancing;
• lease negotiation;
• VAT inspection;
• TOGC analysis;
• deregistration;
• due diligence.

The key documents should include:

• board minutes or written decision;
• VAT1614A;
• HMRC acknowledgement;
• property plan;
• correspondence with advisers;
• evidence of VAT treatment applied.

If you cannot prove the VAT position, you may struggle to defend it.

Mistake 3: Assuming a TOGC is automatic

A Transfer of a Going Concern can be very valuable because it may allow a business or property transaction to complete without VAT being charged.

But a TOGC is not automatic.

For property transactions, the VAT position often depends on whether:

• there is a property letting business;
• the buyer intends to continue the same kind of business;
• the seller has opted to tax;
• the buyer has opted to tax;
• the buyer has notified HMRC before the relevant time;
• the anti-avoidance rules apply.

The practical danger is that parties agree a price assuming no VAT is payable, only to discover late in the day that VAT should have been charged.

On a £1 million property, that is a £200,000 problem.

And nobody enjoys finding a £200,000 VAT issue the week before completion. It does tend to spoil the mood.

Mistake 4: Cancelling VAT registration without reviewing property

HMRC’s update to VAT Notice 700/11 on 31 March 2026 is a helpful reminder that an Option to Tax must be considered before cancelling VAT registration.

This matters because deregistration can trigger VAT consequences where business assets are retained.

If a business owns commercial property, has recovered VAT on costs or has opted to tax, deregistration should be reviewed carefully.

Questions to ask include:

• is VAT due on assets retained at deregistration?
• has VAT been recovered on the property?
• does the Capital Goods Scheme apply?
• will future supplies remain taxable?
• should the business deregister at all?

This is a classic area where a simple administrative decision can become a costly VAT issue.

Mistake 5: Leaving VAT advice until the deal is almost complete

This is the most common mistake of all.

VAT is often reviewed after heads of terms, after funding discussions, after solicitors have started drafting and sometimes only days before completion.

That is too late.

VAT should be considered at the start of a property transaction because it can affect:

• pricing;
• funding;
• cash flow;
• SDLT;
• contracts;
• timing;
• due diligence;
• option to tax notifications;
• TOGC treatment.

The best VAT advice is often invisible because it prevents the problem arising in the first place.

Worked example

A company buys a commercial property for £750,000.

The seller has opted to tax.

If VAT is charged, the buyer may need to fund an additional £150,000 VAT.

If the buyer can recover the VAT, that may only be a cash-flow issue.

But if the buyer cannot recover VAT in full, the VAT becomes a real cost.

If the transaction qualifies as a TOGC, VAT may not need to be charged. But that depends on the facts and the conditions being met.

The commercial difference can be enormous.

Planning opportunities

Good planning should include:

• reviewing the VAT position before heads of terms are agreed;
• identifying whether an Option to Tax exists;
• checking whether the buyer needs to opt to tax;
• considering TOGC treatment;
• reviewing SDLT consequences;
• checking partial exemption;
• reviewing Capital Goods Scheme exposure;
• ensuring contracts correctly reflect the VAT position.

Action points

Before any property transaction, ask:

1. Is the property commercial, residential or mixed-use?
2. Has anyone opted to tax?
3. Is there a letting business?
4. Could TOGC apply?
5. Can the buyer recover VAT?
6. Is there a Capital Goods Scheme asset?
7. Has the VAT position been documented?
8. Do the contracts match the VAT advice?

Jane’s View: property VAT is rarely difficult because the law is impossible. It becomes difficult because the VAT review happens too late.

Jane’s Practical VAT Tip

Before cancelling a VAT registration, selling a property or granting a lease, check whether an Option to Tax has ever been made.

Do not rely on memory.

Find the paperwork.

If the paperwork cannot be found, deal with that before the transaction progresses.

Ask Jane

Question

“We bought a commercial property years ago and charged VAT on rent. We now want to cancel our VAT registration. Can we just deregister?”

Answer

Not without reviewing the property VAT position first.

You need to check whether an Option to Tax was made, whether VAT was recovered on the purchase or refurbishment costs, whether the property is still held by the business and whether deregistration could trigger a VAT charge.

If there is a property involved, deregistration is not just a form.

It needs proper VAT review.

Planning Opportunity

Property VAT Health Check

This is a good time for property owners to review their VAT records.

A useful property VAT health check should confirm:

• properties owned or leased;
• VAT treatment of income;
• Options to Tax made;
• HMRC acknowledgements held;
• VAT recovered on costs;
• Capital Goods Scheme assets;
• TOGC risk areas;
• future sale or lease plans.

This is particularly important for landlords, developers, pension schemes, charities and businesses considering deregistration.

Accountants’ VAT Club

The Accountants’ VAT Club is designed for accountants who want practical VAT support without having to become VAT specialists themselves or employing a VAT specialist.

We provide the advice and you earn extra fees and increase your firms reputation.

Members receive access to VAT updates, practical support, training and guidance on common client issues.

Property VAT, Option to Tax, TOGC and VAT registrations are exactly the type of areas where accountants can add huge value by spotting the issue early.

Closing Remarks

Issue 73 is a reminder that VAT risk often sits quietly in the background until a transaction, inspection or registration change brings it to the surface.

The best time to deal with VAT is before the decision is made.

Not after contracts are signed.

Not after HMRC asks questions.

And definitely not the Friday afternoon before completion.

As always, Deeks VAT Consultancy is here to make complex VAT simple.