Weekly VAT News

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Topics – Societies – liability of designated partner

C-796/23 Česká síť

On 11 December 2025 the Court of Justice of the European Union (CJEU) released its decision in this Czech referral which asks whether a situation in which, pursuant to special national VAT arrangements for ‘societies’ (associations of persons that do not have legal personality), a ‘designated partner’ is liable for the payment of the VAT for the entire society, despite the fact that another partner had dealt with the end customer in relation to the supply of services, is compatible with the VAT Directive. Does the compatibility of the situation with the VAT Directive depend on whether the other partner had overstepped the rules of representing the society and dealt in his, her or its own name with the end customer.

Česká síť (CS) is a limited-liability company established in the Czech Republic. In 2017, CS cooperated with several corporations based in the US that operated in the Czech Republic through their branch offices.

CS and the US corporation branch offices provided services to end customers (in particular, internet connection). Each of the legal entities, acting in its own name, was in contact with a different group of customers and, for 2017, each received consideration for the provision of services.

The executive representative and sole partner of CS was also the head of the branch offices of the US legal entities. He was the only person de facto managing both CS and the branch offices and in 2009 and 2010, CS transferred to the US corporations’ branch offices over 170 of its existing clients, free of charge. CS provided the necessary infrastructure to the branch offices and itself purchased connectivity (for example, all customers were connected to the internet via the same access point). By contrast, the branch offices of the US corporations did not have any tangible or intangible assets and had no wage costs.

The tax authorities concluded that, pursuant to domestic legislation, a de facto ‘society’ existed (an association of persons that do not have legal personality). Based on special rules in the Czech VAT law for societies, CS as the ‘designated partner’, was deemed responsible for paying VAT for the entire society. Consequently, the tax administrator calculated CS’s VAT by including in the tax base both chargeable transactions made by CS in 2017 and the revenue of the branch offices of the US corporations as partners of the society.

In November 2020, the tax authority issued a total of 12 notices of additional assessment. CS appealed unsuccessfully to the Appellate Tax Directorate and then also failed in its action before the Regional Court. CS subsequently lodged an appeal before the Supreme Administrative Court, asserting that the special VAT arrangement for societies and their partners, pursuant to Czech law, is contrary to the VAT Directive. Ultimately, Czech legislation results in the tax authority taxing CS not only on the basis of its own transactions, but also on the basis of foreign transactions.

Essentially, the referring Court asks who has made the supply and who is therefore liable for the corresponding VAT. In the immediate case the question arises in the context of an interaction of several legal persons, some of whom fall below the small enterprise threshold. If all the transactions, added together, had been carried out by a single ‘society’ made up of those legal persons, that threshold would be exceeded.

The CJEU recalled that the terms used in Article 9 of the VAT Directive, in particular the term 'any person', give the concept of 'taxable person' a broad definition based on independence in the pursuit of an economic activity, in the sense that all natural or legal persons, whether public or private, and entities without legal personality, who, objectively, satisfy the criteria set out in that provision, must be regarded as taxable persons for VAT purposes.

To identify a 'taxable person,' it is essential to establish who has independently conducted the relevant economic activity. Independence is determined by whether the transaction is attributable to a specific individual or entity, and by ensuring that the acquirer can lawfully exercise any deduction rights.

The CJEU emphasised that it is necessary to assess whether an individual conducts the economic activity independently, in their own name, on their own behalf, and under their own responsibility. Additionally, it must be determined whether the individual assumes the economic risk associated with those activities.

A person who independently engages with third parties, acting in their own name and assuming the economic risk for taxable transactions, retains the status of a taxable person regardless of any contractual designation as a representative for other parties or entities. The proven existence of even close cooperation between several undertakings is not sufficient to call into question their independence within the meaning of Article 9(1).

The CJEU noted that it is for the referring Court to determine whether the entities in question, namely the branches concerned, must be regarded as carrying on the economic activity in question 'independently’. The CJEU did however confirm that it can assist in this matter.

The CJEU recalled that the referring Court suggests that pursuant to the relevant rules of domestic civil law, CS and the branches had to be regarded as the partners of a single 'company', namely a company governed by civil law without separate legal personality. Therefore, under the rules of the Law on VAT providing for a special regime relating to such partners, CS as a 'managing partner' of a 'company', had the status of a 'taxable person' for VAT purposes, within the meaning of Article 9(1), in respect not only of its own taxable supplies of services but also of the services supplied by the other members of the 'company', and was liable for the VAT due in respect of all those supplies of services pursuant to Article 193.

The CJEU suggested that it is not inconceivable that the application of the domestic legislation transposing Article 11 of the VAT Directive could, in the immediate case, make it possible to treat CS and the branches concerned as a single taxable person, notwithstanding the fact that they are independent from a legal point of view, if it were shown that the distribution of sales between those four companies, all of which appear to be controlled, directly or indirectly, by the sole shareholder CS is the result of a purely artificial arrangement constituting an abuse. The consequence of such a finding would be that the exemption provided for in Article 287(7) would not be applicable since the combined turnover of those companies exceeded the threshold laid down in that provision.

If such a finding of abuse cannot be established, it will be for the referring court to determine whether CS or the branches concerned have the status of taxable person for VAT purposes, within the meaning of Article 9(1). That status will be vested in the latter if it is established that they provided those services by acting independently in relation to CS, acting in their own name, on their own account and under their own responsibility, and if they bear the economic risk associated with the exercise of those activities.

The CJEU considered that in the immediate case, and subject to verification by the referring Court, despite CS’s involvement in the organisation of the supply of services to end customers by the branches concerned, it is those branches which appear to have to be regarded as taxable persons in respect of those services. Those branches provided taxable services to their own end customers, which consisted mainly in the provision of internet connections. Each of those branches provided the services in its own name and recorded the income it derived from them in the tax year concerned. In relations with third parties, the branches essentially presented themselves without directly mentioning the 'company' or one of its partners, in particular CS, as the contracting party, even if the contractual documents contained certain elements that could a priori make it possible to indirectly identify the latter.

The CJEU considered that the identification of taxable persons for VAT purposes must be clear and predictable, especially for legally independent operators closely linked financially and organisationally. This ensures legal certainty for third-party operators, allowing them to exercise their deduction rights securely. Additionally, any deviation from national representation rules does not affect the VAT liability; it simply means the company cannot be considered as having provided the services itself.

In conclusion, the CJEU held that if, at the end of the various verifications to be carried out by the referring court, that court were to consider that, in accordance with Article 9(1) and Article 193, the branches concerned are the persons liable for payment of VAT in respect of the taxable services supplied by them, the latter provision precludes CS from being charged, pursuant to national legislation such as that at issue in the main proceedings, on the ground that it is the 'managing partner' of a 'company' comprising those branches as shareholders.

Comments: Any business operating under similar arrangements should carefully assess its VAT obligations in light of this judgment.

Topics – Joint and several liability to pay VAT after the principal debtor has ceased to exist as a legal person

C-121/24 Vaniz

On 11 December 2025 the Court of Justice of the European Union (CJEU) released its decision in this Bulgarian referral which asks whether Articles 44 and 205 of the VAT Directive, and the principles of transparency and proportionality of liability, permit the initiation, after the principal debtor has ceased to exist as a legal person, of a procedure intended to establish a person’s joint and several liability to pay VAT and the extent of such joint and several liability. Do they, following the removal of the debtor from the commercial register without a legal successor assuming that debtor’s rights and obligations, allow the existence of a registered claim against that debtor, for which a third party is liable a posteriori (knowledge based solely on experience or personal observation).

Vaniz, a registered company engaged in road and freight transport, received taxable supplies of goods and services from Stars International in 2017, including the purchase and rental of vehicles.

Vaniz paid the associated invoices and exercised its right to deduct VAT on these transactions. However, a subsequent audit revealed that Stars International had declared but not paid the VAT on these supplies. In 2019, Stars International entered insolvency proceedings, which concluded in August 2020 with its deletion from the commercial register.

In 2022, a tax audit was initiated in respect of Vaniz to establish liability, pursuant to domestic legislation, for the VAT owed and not paid by Stars International on the supplies of goods and services provided to Vaniz.

The tax authorities assessed Vaniz for the VAT debts from July to September 2017, arguing that Vaniz should have known that the VAT on the invoices would not be paid. Vaniz contested this assessment through an administrative procedure but was unsuccessful.

The referring court noted that Vaniz only became aware of the potential liability after the tax audit began, at which point Stars International had already ceased to exist. This situation raises questions about the interpretation of liability under the VAT Directive, particularly regarding the timing of Vaniz's awareness of the liability and the implications of the supplier's insolvency.

The CJEU noted that the referring court seeks clarification on the extent of joint and several liability under Article 205 of the VAT Directive; considering the principles of proportionality and legal certainty, does it allow national legislation to hold a person jointly and severally liable for VAT after the original liable person has ceased to exist, especially if it is established that the person was aware or should have been aware of impending non-payment of the tax.

The CJEU recalled that Article 205 allows, in principle, Member States to adopt, with a view to the effective collection of VAT, measures under which a person other than that who is normally liable for that tax under Articles 193 to 200 and 202 to 204 is jointly and severally liable to pay that tax.

However, Article 205 does not specify either the persons whom the Member States may designate as joint and several debtors or the situations in which such an appointment may be made. It is therefore for the Member States to determine the conditions and detailed rules for the implementation of the joint and several liability provided for in that article.

The CJEU noted that any such determination must observe the general principles of law which form part of the EU legal order, which include, inter alia, the principles of legal certainty and proportionality.

The CJEU has previously held that national laws could require a jointly liable person to pay not only the unpaid VAT but also any default interest if they were aware of the non-payment. This aligns with the principle of legal certainty, which mandates clear and precise legal rules that allow individuals to understand their rights and obligations.

In examining whether the national legislation conflicts with Article 205, the CJEU noted that the VAT Directive establishes a joint obligation for VAT payment, meaning that where the debtor had disappeared, this does not eliminate the liability of others. Therefore, if the original liable person no longer exists legally, tax authorities can still pursue other joint debtors for a VAT debt.

The CJEU recalled that the objective of Article 205 is to ensure effective VAT collection from the most appropriate parties, particularly when the primary liable person is insolvent or has disappeared. The principle of proportionality requires that Member States' measures to safeguard public treasury rights do not exceed what is necessary to achieve this goal. Allowing liability claims against third parties after the original debtor's disappearance is deemed necessary to prevent potential abuse, such as a debtor liquidating their entity to evade tax responsibilities.

The CJEU also noted that legal certainty demands that individuals should not face indefinite liability regarding their tax obligations. While Member States can set rules and limitation periods for tax claims, these must comply with EU law, ensuring reasonable time limits that protect both taxpayers and tax authorities. In the immediate case, the national legislation provides clarity on the conditions under which a recipient of goods or services can be held liable for VAT, particularly if they knew or should have known about the non-payment.

In conclusion, the CJEU held that Article 205 does not prevent national legislation from allowing the pursuit of a VAT liability against a jointly liable person after the original debtor has ceased to exist, provided it is established that the person was aware or should have been aware of the non-payment. This interpretation upholds the VAT Directive's objectives and principles of legal certainty and proportionality.

Comments: Any business challenged in similar circumstances should consider whether this Judgment provides an opportunity to revisit the decision.

Wednesday 17 December

Hearing – T-198/25 G Kft.

Topics – Correction and refunding of VAT improperly – closed period

A Hungarian referral which asks whether Articles 167, 168, 179, 180, 183, 250 and 252 of the VAT Directive, together with the principles of tax neutrality, effectiveness and proportionality, must be interpreted as permitting domestic legislation to the effect that, in relation to a period closed by means of an inspection, the correction and refunding of VAT improperly invoiced is only possible if there are new facts and circumstances that demonstrate that the taxable person did not previously have, nor could in good faith have had at its disposal, or of which the taxable person was not, nor could in good faith have been aware, even if there was no risk of any loss of tax revenue?

Thursday 15 January

Opinion – C-603/24 Stellantis Portugal

Topics – Valuation and minimum profit margin

A Portuguese referral which asks whether Article 2 of the Sixth VAT Directive, as worded in the version in force at the time of the facts, should be interpreted as meaning that the concept of the supply of services effected for consideration contained in that provision includes an adjustment of the sale price of vehicles which is duly provided for and determined in a contract concluded between the parties, in order to achieve a minimum profit margin, and which is documented by means of a credit or debit note issued to the applicant/appellant by the European manufacturers of the General Motors Group?

The Supreme Court has announced that its judgment in Hotel La Tour Ltd will be handed down on 17 December 2025.

This case concerns the recoverability of VAT arising from fees for professional services incurred in respect of the sale of shares by Hotel La Tour Ltd in its subsidiary, Hotel La Tour Birmingham Ltd.

Disagreeing with the First-tier Tribunal (FTT) and Upper Tribunal (UT), the Court of Appeal (CA) allowed HMRC’s appeal, holding that a direct and immediate link needs to be identified between the input VAT and either the share sale or with the company’s business as a whole. In this case, as there was a direct and immediate link between the costs and the exempt share sale, the CA held that the input VAT was irrecoverable regardless of the ultimate fund-raising intention.

The Court of Appeal decision is available here.

We will be sending an alert about this judgment to EY VAT News subscribers.

For further information, please contact Alex Hale.

Topics – VAT recovery and valid evidence

Athena Luxe Limited

The First-tier Tribunal (FTT) has released its decision in this case concerning HMRC’s refusal to allow input tax claims on the grounds that Athena did not hold valid VAT invoices.

Athena’s business is retail sales via mail order or the internet. It purchases luxury goods including watches, handbags and accessories in the UK and exports those items to customers outside the UK, primarily Hong Kong.

This appeal concerns claims for input tax on purchases from Harrods (which accounts for 93% of the disputed input tax) and Louis Viutton UK Limited (LV) which were denied by HMRC. Input tax claims against purchases from Patek Phillipe were allowed.

All of the Harrods invoices are in the same form. An example of a Harrods invoice was reviewed together with a Harrods till receipt. The invoice number, T0101-05903, reflects that on the till receipt NT0101-005903 and the concession (Hermes) and values (£9,960) match. The till receipt describes the purchase as “Hermes Kelly 25 II Retourne”. Although the date of the invoice and till receipt differs by a day, this was explained as a typographical error by Harrods.

The invoices issued by LV did not refer to Athena by name but an Athena employee making the purchase. Athena explained that compliant VAT invoices had been requested but LV had not provided them.

HMRC argued that the documents provided for purchases from Harrods and LV did not meet Regulation 14 of the VAT Regulations.

Athena asserted that the invoices it obtained from Harrods are valid VAT invoices; alternatively, if they are invalid, HMRC acted unreasonably in refusing to exercise its discretion under Regulation 29 of the VAT Regulations. The same discretion should also be exercised to allow the input tax incurred in relation to the LV invoices (the invoices were accepted as invalid as they do not have Athena’s name stated on them but instead show the name of the employee/director who made the purchase on behalf of Athena).

Considering whether the Harrods invoices were valid, the FTT held that the invoices, when accompanied with the corresponding till receipts, are valid invoices that satisfy the requirement of Regulation 14(1)(g). This is because they provided a description sufficient to identify the goods or services supplied.

Given its conclusion that the Harrods invoices are valid it was not necessary for the FTT to consider the reasonableness of otherwise of HMRC’s discretion in relation to those invoices. However, although it had been accepted that the LV invoices were not valid, the FTT considered it was unreasonable of HMRC not to exercise its discretion in this case in relation to those invoices. Athena had done all it could to obtain a valid VAT invoice and HMRC has accepted that the “additional evidence does show payments by the business”. Any distinction made by HMRC between LV and Patek Phillipe purchases was irrational. The fact that Athena conducts its business in the same way regardless of the identity of its supplier/customer is a relevant consideration that ought to have been taken into account.

Appeal allowed.

Comments: A useful reminder that HMRC has discretion to allow alternative evidence regarding input tax claims. Any business denied VAT recovery, where evidence to support a purchase is held, should consider whether this decision provides an opportunity to revisit the decision.

For further information please contact Andy Jones.

Topics - Cool-down rotisserie chickens - whether ‘hot food’

WM Morrison Supermarkets Limited

The First-tier Tribunal (FTT) has released its decision in this case concerning the sale of whole cool-down rotisserie chickens (CDRCs) by WM Morrison Supermarkets Limited (Morrisons) and whether they qualify as zero-rated pursuant to section 30 and Item 1, Group 1, Schedule 8, VATA94 as ‘food of a kind used for human consumption’ and not excluded from zero-rating as a ‘supply in the course of catering’.

Item 1, Group 1, Schedule 8, VATA94 provides (Note 3) that a supply of anything in the course of catering includes any supply of it for consumption on the premises on which it is supplied, and any supply of hot food for consumption off those premises.

Note (3B) provides – ‘hot food’ means food which (or any part of which) is hot at the time it is provided to the customer and (a) has been heated for the purposes of enabling it to be consumed hot, (b) has been heated to order, (c) has been kept hot after being heated, (d) is provided to a customer in packaging that retains heat (whether or not the packaging was primarily designed for that purpose) or in any other packaging that is specifically designed for hot food, or (e) is advertised or marketed in a way that indicates that it is supplied hot.

Note (3C) provides – for the purposes of Note (3B), (a) something is ‘hot’ if it is at a temperature above the ambient air temperature, and (b) something is ‘kept hot’ after being heated if the supplier stores it in an environment which provides, applies or retains heat, or takes other steps to ensure it remains hot or to slow down the natural cooling process.

Note (3D) provides - in Notes (3B) and (3C), references to food being heated include references to it being cooked or reheated.

A CDRC is ‘hot at the time it is provided to the customer but is not ‘heated to order’. The FTT noted it was therefore necessary to consider:

• Have the CDRCs been heated for the purposes of enabling them to be consumed hot (Note (3B)(a))
• Have the CDRCs been kept hot after being heated (Note (3B)(c))
• Have the CDRCs been provided to a customer in packaging that retains heat (whether or not the packaging was primarily designed for that purpose) or in any other packaging that is specifically designed for hot food (Note (3B)(d))
• Have the CDRCs been advertised or marketed in a way that indicates that they are supplied hot (Note (3B)(e))

The FTT considered that if the answer to any one of these questions is ‘Yes’, the CDRCs will be excluded from zero-rating.

Have the CDRCs been heated for the purposes of enabling them to be consumed hot (Note (3B)(a))

The FTT considered that although CDRCs are hot when sold and will stay that way for at least two hours after purchase, Morrisons’ marketing focuses on CDRCs being fresh rather than hot.

The FTT did not consider that it is an important, or essential, term of the agreement between Morrisons and a purchaser of a CDRC that the CDRC has been heated for the purpose of enabling it to be consumed hot.

Have the CDRCs been kept hot after being heated (Note (3B)(c))

The FTT recalled that something is ‘kept hot’ after being heated if the supplier stores it in an environment which provides, applies or retains heat, or takes other steps to ensure it remains hot or to slow down the natural cooling process.

The FTT noted that whilst the CDRCs were not stored in a heated environment, they were placed in specific lined ‘paper bags’, which, while not heated, slowed the cooling process. The definition of ‘environment’ is broad, encompassing the physical conditions affecting an object's temperature. The FTT noted that an environment retains heat if it reduces heat loss compared to natural cooling. Evidence indicated that after two hours, CDRCs in the ‘paper bags’ maintained higher temperatures (42-45℃) than those cooling naturally (31.8℃). The FTT considered that the ‘paper bags’, sealed on three sides, created conditions that slowed cooling, thus retaining heat. Consequently, it concluded that CDRCs were stored in an environment that effectively retained heat, keeping them warmer than they would have been if left to cool naturally.

The FTT noted that something is also kept hot if the supplier takes other steps to ensure it remains hot or to slow down the natural cooling process. This requires an objective view of purpose.

The FTT was critical of the suggestion that packaging CDRCs in the ‘paper bags’ is solely for hygiene or marketing purposes, asserting that these bags do indeed slow cooling and retain heat. While the bags serve multiple roles, including enhancing visibility and hygiene, the FTT suggested that one objective reason for their use is to maintain warmth, which is beneficial for marketing fresh products.

The FTT noted that customer expectations often include receiving warm CDRCs, and that retaining heat can prevent lost sales. The FTT concluded that whilst removing CDRCs from sale after two hours, due to hygiene regulations, does not count as a step to keep them hot in itself, the packaging's role in heat retention aligns with the broader marketing strategy of presenting the product as fresh and appealing.

The FTT considered its interpretation not to be absurd and fully aligned with Parliament’s approach to the mischief the law aims to address.

Have the CDRCs been provided to a customer in packaging that retains heat (whether or not the packaging was primarily designed for that purpose) or in any other packaging that is specifically designed for hot food (Note (3B)(d))

The FTT noted that the ‘paper bags’ in which CDRCs are stored and then sold retain heat very effectively. CDRCs have been provided to customers in packaging that retains heat (whether or not the packaging was primarily designed for that purpose) within the meaning of the first limb of Note (3B)(d).

Considering whether the ‘paper bags’ were ‘other packaging that is specifically designed for hot food’, the FTT noted that this question only arises if CDRCs are provided in packaging which is not caught by the first half of Note (3B)(d). The FTT derived this from the two limbs of Note (3B)(d) being joined by the words ‘or in any other packaging’. This part of the test is, therefore, only relevant if its conclusion on the first limb of Note (3B)(d) is wrong.

The FTT noted that from the evidence presented, it was clear that on occasion cold food has been put in the ‘paper bags’. However, the fact that cold food has occasionally been put into the bags does not mean that, looked at objectively, they have not been specifically designed for hot food. It just means that they can cope with cold food as well as hot food.

If, looking at the characteristics of the ‘paper bags’ objectively (designed with a plastic lining and sealed on three sides), it would be reasonable to conclude that the packaging has been designed with hot food in mind, to address particular problems presented by hot food. They can be said to have been specifically, albeit not exclusively, designed for hot food.

The FTT concluded that the CDRCs were provided to customers in packaging that was specifically designed for hot food within the meaning of the second limb of Note (3B)(d).

Have the CDRCs been advertised or marketed in a way that indicates that they are supplied hot (Note (3B)(e))

Considering the marketing and advertising practices of Morrisons regarding CDRC’s, particularly focusing on whether they were marketed as hot, the FTT acknowledged that effective marketing extends beyond words, referencing the idea that visuals can convey messages more powerfully than text. The FTT emphasised the importance of the language used in advertising, noting that while terms like ‘fresh’ and ‘roasted’ suggest recent preparation, they do not imply that the products are served hot.

The terms used to describe the CDRCs did not necessarily indicate it was hot at the point of sale. Morrisons' advertising materials included minimal references to heat, with the word ‘hot’ appearing only in a cautionary note on packaging, which is not prominently displayed.

The FTT also addressed the placement of CDRCs near hot food items, arguing that such proximity does not equate to marketing them as hot.

The FTT concluded on this point that despite the enticing atmosphere of the Oven Fresh counter, there was no explicit marketing of CDRCs as hot, and thus, they were not advertised in a manner that indicated they were supplied hot.

In conclusion on the question of the VAT liability of CDRCs, the FTT confirmed that they are hot at the time of supply within the meaning of Note (3B) and were not cooked to order (Note (3B)(b)).

The CDRCs:

• Were not heated for the purposes of enabling them to be consumed hot (Note (3B)(a))
• Were kept hot after being heated (Note (3B)(c))
• Were provided to customers in packaging that retained heat (whether or not the packaging was primarily designed for that purpose) or in any other packaging that was specifically designed for hot food (Note (3B)(d))
• Were not advertised or marketed in a way that indicated that they were supplied hot (Note (3B)(e))

It follows that supplies of CDRCs were supplies in the course of catering and so were excluded from zero-rating. The appeal on the grounds of VAT liability therefore fails.

The FTT also considered whether it had jurisdiction to consider public law issues on an appeal under section 83(1)(p) VATA94 and determined that it did.

The FTT finally considered whether Morrisons had a legitimate expectation as to the VAT treatment of CDRCs from which it would be unfair to allow HMRC to resile retrospectively. In this regard it did not consider that there was anything in HMRC’s dealings with Morrisons which is sufficient to establish a legitimate expectation either that the overall VAT treatment of CDRCs was that they would be zero-rated or that HMRC would take a particular position as regards any aspect of the storage or marketing of CDRCs and any of the tests in Note (3B). Also, there is nothing in HMRC’s published guidance which is sufficient to found such a legitimate expectation.

In addition to these proceedings, Morrisons has applied to the Administrative Court for permission to apply for judicial review. HMRC opposed the grant of permission. Judge Rupert Jones rejected HMRC’s arguments, stating that he was satisfied that it is arguable that HMRC’s rulings and guidance created a legitimate expectation, and granted permission. Both parties agreed that the judicial review claim should be stayed pending the outcome of this appeal, and that was part of the order made by Judge Jones. Morrisons relied on the same grounds in relation to the Legitimate Expectation Ground in this appeal as it relies on in its application for judicial review.

Comments: This is another case which demonstrates the complexities concerning VAT and food. Businesses selling similar products should consider the VAT liability applied. It is essential for businesses to have a clear understanding of VAT regulations, particularly regarding what constitutes "hot food" and the criteria for zero-rating.

For further information please contact Andy Jones.

Following the First-tier Tribunal (FTT) decision in Isle of Wight NHS Trust, this Brief provides an update on the VAT treatment of the supply of temporary medical staff (locum doctors). It also provides guidance for anyone who wants to claim a refund of overdeclared output tax following the decision.

Item 5, Group 7, Schedule 9, VATA94 provides for exemption for the provision of a deputy for a person registered in the register of medical practitioners. HMRC’s position had been that this exemption is restricted to the supply of deputising services, like the GP out of hours service. HMRC considered supplies of temporary staff by employment businesses as taxable supplies of staff, subject to VAT at the standard rate.

However, the FTT in Isle of Wight NHS Trust disagreed, finding that VAT exemption applied to supplies of staff, not just the supply of medical care. It also found that the exemption applied to locum doctors, including those provided by employment businesses.

The FTT determined that HMRC's interpretation would undermine legislative intent and existing exemptions. It concluded that Item 5 applies to the supply of staff who are registered medical practitioners, regardless of the circumstances leading to the vacancy. The Tribunal found that the Appellant provided sufficient evidence to demonstrate that the locums supplied were fulfilling roles requiring registered medical practitioners, and thus, the Appellant was incorrectly charged VAT on these supplies.

HMRC is not appealing the decision of the FTT, and states that updated guidance will be published in due course. In the meantime, claims can be submitted for over declared VAT if all the following apply:

• You have made a supply of locum doctors
• You have charged output tax at the standard rate
• You now consider this should have been exempt from VAT
• The supply was within the last 4 years

Only the person who made the supply of staff and charged output tax can claim a refund, which depending on the value of the claim can be made, subject to unjust enrichment, via an adjustment to the VAT return for the period in which the overdeclared tax is discovered or by making an error correction notification.

Possible effect on recovered input tax

These supplies would previously have been treated as taxable but are now treated as exempt. This means you will need to consider the impact on associated input tax that you have recovered on previous VAT returns. This includes considering the rules on partial exemption.

For further information please contact Russell Moore.

This Guidance provides details regarding the form which should be used if HMRC requests details to support a VAT repayment claim. It has been updated under 'What you'll need' to remove examples of specific documents in order to improve clarity.

This Guidance explains what you may need to do if you either: trade or move goods between GB and Northern Ireland; import goods into Northern Ireland from outside the UK and from outside the EU; or move goods between Northern Ireland and the EU. Information about moving goods between Northern Ireland and GB has been added.

Please also refer to Making an indirect export from Northern Ireland – From 15 December 2025, you will no longer be able to use the Customs Declaration Service (CDS) for handling indirect exports end-to-end from Northern Ireland.

This Guidance explains that you may be able to claim a waiver for goods brought into Northern Ireland so that you do not have to pay duty on those goods. The date when you must update the sector of your undertaking in the digital service to continue using the waiver has changed from before 1 January 2026 to before 31 December 2025.

For further information regarding Northern Ireland please contact Michael McNeil or Gerard Koevoets for global trade.

HMRC has published its Corporate Report – Performance update: October 2025.

Belgium

The Belgian authorities have announced that a tolerance period will apply during the first quarter of 2026 for the upcoming mandatory business-to-business (B2B) e-invoicing rules. During this period, and only if specific conditions are met, penalties will be waived for certain breaches related to e-invoicing.

Importantly, this does not imply a delay in the go-live date for mandatory B2B e-invoicing, which remains 1 January 2026. Instead, the tolerance period reflects a pragmatic approach for businesses that have prepared in a timely manner but are still dealing with issues outside their control. Planning ahead remains essential.

Further, on 3 December 2025, a new draft law on the B2B e-invoicing mandate was published.

Argentina

General Resolution No. 5,792/2025 establishes an option for foreign trade operators in Argentina to convert and display balances in favour of national taxes and export refunds in US dollars, for amounts accumulated or formalised as of 31 October 2025. To exercise the option, taxpayers must submit an online request between 5 December 2025 and 1 March 2026. Affected entities should evaluate the benefits of converting their available tax balances and export refunds to US dollars.

Estonia

Our alert provides a non-exhaustive overview of recent tax rate changes in Estonia, reviews changes in Estonia's tax treaty network and describes VAT amendments, which include:

• Effective 1 July 2025, the standard VAT rate has increased from 22% to 24%. This adjustment has now been established as a permanent increase, contrary to previous plans for a temporary adjustment lasting only three years
• Mandatory e-invoice upon request – starting from 1 July 2025, sellers are obligated to issue an e-invoice upon request from a buyer. Buyers have the right to demand an e-invoice from sellers in the private sector if they are registered in the commercial register as e-invoice recipients. If a buyer requests an e-invoice and no alternative format has been agreed upon, the European e-invoicing standard will be used by default. This amendment applies to all accounting entities registered in the commercial register as e-invoice recipients, including public sector entities

Canada

Prime Minister Mark Carney has announced new trade measures aimed at transforming the Canadian steel industry, effective 26 December 2025, which include reductions in tariff rate quotas on certain steel imports and a new global tariff on specific steel-derivative products.

Tariff rate quotas for countries that do not have free trade agreements with Canada will be reduced from 50% to 20% of 2024 levels, while those with free trade agreements will see a reduction from 100% to 75%, with over-quota volumes facing a 50% surtax.

A new 25% global tariff will be imposed on the full value of listed steel-derivative products, affecting various categories including shapes of iron, doors, windows and fasteners; the list is expected to be updated periodically.

Affected entities should assess the implications of these changes on their supply chains and pricing strategies.

Canada

The Border Services Agency has announced a consultation period for proposed amendments to the Valuation for Duty Regulations, which will close on 23 January 2026. The proposed changes aim to clarify the definition of "sale for export to Canada," exclude certain domestic sales from consideration and align with international customs valuation agreements.

Affected entities should assess how these proposed changes could affect their import practices and compliance obligations and consider participating in the consultation to voice their concerns and insights regarding the amendments.

Saudi Arabia

The Minister of Finance has issued Decision No. (1447-88-5), approving and implementing amendments to specific Harmonised System (HS) codes and their related subheadings in the Integrated Customs Tariff Schedule, which is based on the international system of classification of goods developed by the World Customs Organisation.

Additionally, Decision No. (1447-88-7) dated 14 November 2025, revises the customs duty rates for the specified HS codes taking into account the ceilings that Saudi Arabia committed to with the World Trade Organisation.

These amendments came into effect upon their publication in the official Saudi Gazette on 27 November 2025.

Kenya

The Revenue Authority (KRA) has introduced several system enhancements aimed at strengthening tax compliance and improving accuracy in return filings. Key changes include stricter eligibility requirements for obtaining Tax Compliance Certificates, the introduction of a workflow for Overpayment Adjustment Vouchers and Instalment Adjustment Vouchers, which now require KRA approval before they can be applied to tax liabilities, and the rollout of an Automated Payment Plan to allow eligible taxpayers to settle confirmed tax liabilities in instalments of up to six months.

Additionally, the KRA will implement validation of income and expenses declared in tax returns, effective 1 January 2026, by cross-checking data with the Tax Invoice Management System, withholding tax certificates and customs import records. These changes are expected to streamline compliance, improve data integrity and enhance taxpayer accountability.

EU Finance Ministers have agreed to apply a fixed customs duty of €3 on small parcels valued at less than €150 entering the EU, largely via e-commerce, from 1 July 2026.

The customs duty will be applied to all goods entering the EU for which non-EU sellers are registered in the EU’s import one-stop shop (IOSS) for VAT purposes. This encompasses 93% of all e-commerce flows to the EU.

This move follows the Council’s commitment at the November 2025 ECOFIN meeting to work towards a temporary solution to levy customs duties on such goods as soon as possible in 2026. The measure will stay in place until the agreement for a permanent solution to eliminate the customs duty relief threshold altogether comes into application. At that point, all goods under €150 will be eligible for customs duty at the normal EU tariffs for individual products. The Commission will regularly assess whether the rate should be extended to goods arriving in the EU sold by traders not registered in the IOSS.

Article 258 of the Treaty on the Functioning of the European Union, gives the Commission the power to take legal action against a Member State that is not respecting its obligations under EU law.

The infringement procedure begins with a request for information (a ‘Letter of Formal Notice’) to the Member State concerned, which must be answered within a specified period, usually two months.

If the Commission is not satisfied with the information and concludes that the Member State in question is failing to fulfil its obligations under EU law, the Commission may then send a formal request to comply with EU law (a ‘Reasoned Opinion’), calling on the Member State to inform the Commission of the measures taken to comply within a specified period, usually two months.

If a Member State fails to ensure compliance with EU law, the Commission may then decide to refer the Member State to the CJEU.

The latest listing of infringement decisions (December) includes the following actions:

• The European Commission has sent Reasoned Opinions to Czechia (INFR(2025)2054), Ireland (INFR(2025)2055), France (INFR(2025)2012), Austria (INFR(2025)2007) and Portugal (INFR(2025)2013) for failing to fulfil their obligations to transmit customs data to the Commission through the SURV3 system, as required under Article 16(1) of the Union Customs Code (UCC), Articles 55(1) and 56(1) and Annex 21-03 of Commission Implementing Regulation (EU) 2015/2447. Member States must transmit to the Commission, via SURV3, data extracted from their national systems on import and export declarations, covering 57 standardised data elements. The Member States concerned transmit only a limited subset of these elements, and continue to use outdated formats, which affects the Commission's ability to monitor EU trade flows and ensure uniform application of customs rules. Despite the letters of formal notice sent between May and July 2025, the five Member States have not yet achieved full compliance, as evidenced by the data reported in SURV3.
• The European Commission has sent Reasoned Opinions to Czechia (INFR(2025)2017), Greece (INFR(2025)2019), and Slovakia (INFR(2025)2021) for failing to fully implement the National Import System (NIS) or the Temporary Storage system for Air transport (TS Air) as required by the Union Customs Code (UCC) and Commission Implementing Decision (EU) 2023/2879 (the Work Programme). These systems are key components of the UCC's digital customs framework. Member States were required to make them fully operational by 31 December 2023. Despite earlier letters of formal notice, all three Member States have not yet deployed these systems or provided credible short-term implementation plans. Czechia has delayed its NIS deployment to the first half of 2026. Greece has not completed the deployment of TS Air, which is postponed to 2027. Slovakia plans to implement TS Air only in 2026–2027.

The European Commission has Published the Mind the Gap report which offers an assessment of tax gaps in the EU and its 27 Member States.

The report is accompanied by two technical reports estimating tax gaps for VAT and Corporate Income Tax. According to the latest available data, estimates of the VAT compliance tax gap alone – representing the difference between the money that could have been collected by governments and the money actually collected – amount to 128 billion EUR in 2023, with Romania (30%) and Malta (24.2%) recording the highest VAT compliance gaps, while Austria (1%) and Finland (3%) performed best. The evolution of the gap across the EU shows diverging national trends, partly explained by sustained administrative capacity and digital reporting reforms. The report also underscores a 50.5% VAT policy gap, driven by reduced rates and exemptions, with Spain (59.1%) and Greece (57.0%) having the highest policy gap levels, reflecting their respective policy choices.

The findings, presented in the report, along with the complementary research in the VAT Gap report, and the CIT Gap report, reveal critical insights into tax compliance challenges and policy choices, which impact fiscal sustainability and competitiveness. They distinguish between tax gaps that emerge due to taxpayer non-compliance, such as tax evasion and avoidance, and policy choices – namely tax expenditures, such as tax reliefs or concessions.

The report highlights the benefits of reducing tax compliance gaps, including fostering fairer tax systems and sounder public finances. It stresses the need for regular and transparent reporting on, and evaluation of, tax expenditures to ensure that they remain cost effective, targeted and proportionate. The report also emphasises the importance of enabling factors to reduce the tax compliance gaps, notably the ongoing digital transformation in Member States and the need for effective mechanisms for tax collection, recovery and administrative cooperation. In terms of providing solutions, it encourages Member States to build up estimation capacities, to check whether tax expenditures serve their purpose and deliver value for money, and to make better use of modern – and digital – tools to fight compliance gaps.

The OECD has published its Revenue Statistics 2025 Report – the accompanying press release is available here. 

This edition provides final data on tax revenues in OECD countries for 2023 and preliminary data for 2024, a year in which short- and long-term spending pressures prompted several OECD countries to introduce measures to increase revenues. In 2024, the average tax-to-GDP ratio of OECD countries increased by 0.3 percentage points (p.p.) to 34.1%. This was the first annual increase since 2021 and elevated the average tax-to-GDP ratio for the 38 countries included in the report to its highest recorded level.

Among the 36 countries for which preliminary data is available, tax-to-GDP ratios ranged from 18.3% in Mexico to 45.2% in Denmark in 2024. The tax-to-GDP ratio increased in 22 of the 36 countries between 2023 and 2024, declined in 13 and was unchanged in one. The largest increases in 2024 were observed in Latvia (2.4 p.p.) and Slovenia (1.9 p.p.), primarily driven by higher social security contributions (SSCs). Colombia recorded the largest decrease (of -2.2 p.p.). The UK’s remained relatively stable at 34.4% in 2024 (35% in 2023).

In 2023, the latest year for which final tax revenue data is available for all OECD countries, SSCs accounted for the largest share of tax revenues in the OECD, at 25.5%, on average, while revenues from PIT accounted for the second-largest share, at 23.7%. VAT accounted for just over one fifth of total revenues (20.5%), with other consumption taxes generating a further 10.8%. CIT accounted for 11.9% of total tax revenues in 2023, with property taxes (5.1%) and residual taxes accounting for the remainder.