Weekly VAT News

Following a Written Statement by Dan Tomlinson, Exchequer Secretary to the Treasury, the Government has published Finance Bill 2026-27 – draft legislation and technical tax documents which provides draft legislation and tax information and impact notes (TIINs) for Finance Bill 2026-27.

The draft legislation is open for comment until 7 September 2026.

The full collection of draft legislation includes measures on the following broad headings:

• Draft legislation published for Finance Bill 2026-27
• Personal Tax draft legislation
• Corporate Tax draft legislation
• Indirect Tax draft legislation
• Anti-avoidance draft legislation
• Customs duties and levies draft legislation
• Other Taxes draft legislation
• Tax Administration draft legislation
• Supplementary documents

Indirect tax measures include:

Electric Vehicle Excise Duty (eVED) – This measure implements Electric Vehicle Excise Duty (eVED) as an extension of the current Vehicle Excise Duty (VED) regime.

A new mileage-based charge will apply to battery electric vehicles (BEV), plug-in hybrid or plug-in hybrid electric vehicle (PHEV), or hydrogen-powered/ hydrogen fuel cell vehicle (HFCEV) that are cars. The rates of tax will be:

• 3 pence per mile for BEVs and HFCEVs
• 1.5 pence per mile for PHEVs

The rate will be uprated in 2029 to 2030, and in future years, in line with Consumer Prices Inflation (CPI), to ensure that the tax maintains its real-terms value.

This measure will take effect from 1 April 2028.

Please also refer to Consultation Outcome – Consultation on the Introduction of Electric Vehicle Excise Duty (eVED) – This set out further details on how eVED would work and sought views on its design and implementation. The consultation ran from 26 November until 18 March 2026 and received over 5,000 responses. The consultation response summarises the main views shared through the consultation and provides the government’s response to these as well as next steps.

Vehicle Excise Duty (VED) exemption for search and rescue vehicles – This measure aims to ensure that charities whose main purpose is to work with authorities on search and rescue operations will no longer need to pay Vehicle Excise Duty (VED). For a vehicle to be exempt from VED, it must meet all the following criteria:

• It is primarily used for search and rescue activities
• It is readily identifiable as a vehicle used for search and rescue activities by being marked ‘Search and Rescue’ on both sides
• It is registered to a search and rescue charity

This measure will take effect from 1 April 2027.

For further information please contact Richard Norman or Craig Clark.

VAT provisions for Deposit Return Schemes (DRS) – This measure introduces new VAT accounting rules for supplies made under a statutory Deposit Return Scheme (DRS).

This measure introduces new VAT accounting rules for supplies made under drinks deposit schemes. There are 3 national drinks deposit schemes established in the United Kingdom: one for England and Northern Ireland, one for Scotland and one for Wales.

Under current legislation for VAT accounting in respect of drinks deposit schemes, the deposit amount is disregarded for the purpose of determining the value of supplies of scheme products. This means that VAT is not accounted for in respect of the deposit element of the price at the point of sale by suppliers of such products. Instead, manufacturers or importers who make the first supplies of the products in the UK are required to account for VAT on deposits that are not refunded as a result of the containers not being returned.

This new measure introduces a different approach which is designed to simplify VAT accounting with the scheme administrator for each scheme – the body with statutory responsibility for operating the scheme – required to account for VAT on deposits that are not refunded.

As a result, businesses in the supply chain will no longer need to account for VAT on the deposit element of the price at each stage. Instead, the VAT liability on unrefunded deposits will rest centrally with the scheme administrator.

The measure will be introduced in Finance Bill 2026-27 together with detailed accounting regulations to be made by HMRC in a Statutory Instrument which will be made after the Finance Bill receives Royal Assent. The provisions will take effect from the commencement of the deposit schemes.  These are expected to start in Autumn 2027.

For further information please contact Helen Jamieson.

Air Passenger Duty and private jets – This measure confirms that from April 2027, the higher rate of Air Passenger Duty will apply to aircraft of 5.7 tonnes or more that are used as a private or business jet. Currently, the higher rate of Air Passenger Duty applies to aircraft of 20 tonnes equipped to carry fewer than 19 passengers. Many private and business jets do not meet these criteria, so they pay the same rate that applies to scheduled services.

Legislation will be introduced in Finance Bill 2026-27 to amend sections 30 and 30A Finance Act 94 to apply the higher rate to aircraft operating as a business jet. Section 31 will also be amended to clarify that the exemption for child passengers does not apply to business jets.

This measure will have effect in relation to the carriage of passengers on or after 1 April 2027.

For further information please contact Saleena Beedassy.

Reforming customs rules for low value imports – This measure will remove the £135 duty relief and introduce new customs arrangements for low value imports. The reforms will introduce new requirements for data, payments and compliance, and aim to improve control of imports.

The measure will come into force on such day as the Treasury may by regulations made by statutory instrument appoint by October 2028 at the latest.

Please also refer to Consultation Outcome – Reforming the customs treatment of low value imports into the United Kingdom – This sets out the Government’s response to the consultation on reforming the customs treatment of low value imports (goods valued at £135 or less entering the UK). It summarises stakeholder feedback and confirms decisions on introducing new customs arrangements, tariff treatment, additional fees, VAT collection and the next steps for implementation (including legislation and guidance).

For further information please contact Gerard Koevoets or Onelia Angelosanto.

Landfill Tax: removal of exemption for stabilisers added to dredgings when sent to landfill – This measure will remove the Landfill Tax exemption for materials added to dredged material as stabilisers before disposal. As a result of this change, only the dredged material itself will remain exempt. Any additional material used to stabilise dredgings, such as air pollution control residues (APCr), will be subject to Landfill Tax at the relevant rate.

Legislation will be introduced in Finance Bill 2026-27 to amend section 43 of Finance Act 96 to limit the exemption from Landfill Tax to dredged material only.

This measure will have effect from 1 April 2027.

For further information, please contact Mitchell Moss.

Alcohol Duty – penalties for late filing and late payments – This measure introduces HMRC’s reformed late submission and late payment penalties known as Penalty Reform to Alcohol Duty requirements.   

Penalty Reform introduces a new points-based penalty regime for late submission of tax returns. It gives those who are occasionally late the opportunity to correct their filing habits to prevent financial penalties, while continuing to penalise those who repeatedly fail to meet their filing obligations.  

The reformed late payment penalties are designed to encourage timely payment as the penalty amount is determined by the amount outstanding and the length of time it remains unpaid.  

Penalty Reform for alcohol duty is anticipated to replace existing penalties by appointed day order in Spring 2027.  This is contingent on the further IT development of the necessary systems and will be updated in due course.  

For further information please contact Craig Clark.

Changes to the Soft Drinks Industry Levy – The following changes to the Soft Drinks Industry Levy (SDIL) will have effect from 1 January 2028:

• The threshold at which a soft drink with added sugar becomes liable for the SDIL will be lowered from 5g to 4.5g per 100ml
• The current exemption for milk-based drinks with added sugar will be removed and the tax thresholds applied to the total sugars in the drink minus those sugars present from lactose in milk or milk products
• The current exemption for milk substitute drinks with added sugar will be removed and the tax thresholds applied to the total sugar content in the drink

Legislation will be introduced in Finance Bill 2026-27 to amend Finance Act 2017, Part 2. Consequential amendments will be made to the SDIL 2018 Regulations.

For further information please contact Thomas Pegler.

Reforming information powers and modernising computer records law – This measure introduces a number of changes to HMRC’s information and inspection powers under Schedule 36 to the Finance Act 2008 and legislation for computer records set out in Section 114 of the Finance Act 2008. The changes will help HMRC access and process information in a modern digital economy. They will support tax compliance checks and help HMRC meet international information exchange standards with other countries.

This measure will have effect on and after the date of Royal Assent to Finance Bill 2026-27.

Modernising the correction of errors – This measure introduces new requirements to correct inaccuracies in returns or documents provided to HMRC. It makes explicit the obligation on taxpayers to take action to correct errors once they are identified. It also gives HMRC a new power to issue a Customer Correction Notice, which requires the taxpayer to check their position and either correct the inaccuracy or explain why no correction is needed.

The policy aims to improve compliance by requiring customers to correct errors once they become aware of them, thus enabling HMRC to focus compliance resource on more complex non-compliance. It seeks to achieve this by establishing clear expectations and providing incentives through the penalty system.

Legislation will introduce a new general obligation to take corrective action and will:

• Introduce a new obligation for taxpayers to take corrective action where they become aware of an inaccuracy within a return or document covered by Schedule 24 of Finance Act 2007, either by correcting it or by notifying HMRC where a correction cannot be made directly
• Ensure that the requirement to take corrective action applies only where the taxpayer or HMRC remains within existing statutory time limits for amending returns or making assessments
• Amend section 118(6) Taxes Management Act 1970 and related provisions so that, where a taxpayer becomes aware of an inaccuracy and does not take reasonable steps to correct or notify HMRC, the inaccuracy is treated as deliberate for the purposes of penalties and assessment time limits

Legislation will introduce a new customer correction notice and will:

• Introduce a new power enabling HMRC to issue a Customer Correction Notice requiring a taxpayer to respond, including by correcting an inaccuracy, making a disclosure, or confirming no correction is required
• Provide for inaccuracy penalties to only apply to deliberate errors where the taxpayer takes reasonable steps to secure a correction following receipt of their first Customer Correction Notice within a six-year period
• Provide for errors found later by HMRC upon scrutiny of a customer correction, or the absence of a correction, following a Customer Correction Notice to be presumed to be careless unless the inaccuracy is deliberate or the taxpayer can satisfy HMRC that they took reasonable care in the first instance
• Include provision for commencement by appointed day order

The measure will take effect on or after an appointed day in the future

Topics – Joint and several liability, tax representatives

T-356/25 Rapera

On 8 July 2026 the General Court of the European Union (GCEU) released its decision in this Greek referral which seeks clarification regarding Articles 204 and 205 of the VAT Directive and the principle of proportionality regarding joint and several liability of tax representatives (who merely submit VAT returns), particularly whether national laws can impose such liability without assessing the representative’s involvement in the taxable activities. The case hinges on national provisions which stipulate that a tax representative can be held jointly liable for VAT obligations without requiring evidence of their involvement in the taxable person’s economic activities.

The Applicant is a customs agent registered as the tax agent of the company O, which is established in Italy and has an Italian tax identification number. O also has an establishment in Greece and a Greek tax number.

In 2023, the Greek tax authority conducted an audit of O for the tax years 2020 to 2022, concerning the correct application of VAT legislation as regards intra Community supplies made by that company under the Greek tax number to its customers in Bulgaria and Italy, and intra-Community supplies made directly by the Italian parent undertaking, with documents issued under the Italian tax number, to Greek undertakings.

The audit established that O stored goods brought into Greece by sea in a Greek port and in other warehouses in the Greek territory. The Italian company carried out intra-Community supplies of goods outside the framework of the provisions of the VAT Code and transactions were identified which did not meet the conditions laid down by the relevant provisions. In particular, it was established that the Greek establishment of O had failed to pay VAT. On the basis of the audit’s findings, the tax authority adopted against both O and the Applicant, in its capacity as tax representative of O, an act imposing immediate and urgent precautionary or public interest protection measures. More specifically, that provision provides that the tax authority may refuse to receive or issue the documents required for the transfer of offenders’ assets and may, inter alia, freeze, up to the limit laid down in those provisions, deposits of any kind in the offenders’ accounts.

The Applicant argued that the tax authority incorrectly treated it as the tax representative of company O, when it acted only as a tax agent responsible for communications with the tax authority and certain VAT-related administrative tasks. It contends that O already had a Greek VAT number and therefore did not require a tax representative.

The Applicant states that it was not involved in O’s business activities, records, transactions, suppliers, customers, contracts, or movement of goods, and merely submitted VAT returns and paid VAT using funds provided by its principal. It also maintains that it had no role in O’s intra-Community transactions declared under an Italian VAT number, which were handled directly by the Italian company. According to the Applicant, it had been wrongly considered jointly and severally liable because the tax authority’s electronic system does not distinguish between a tax representative and a tax agent.

The tax authority, however, argued that the Applicant was O’s tax representative under the VAT Code and is therefore jointly and severally liable for O’s VAT obligations.

The GCEU recalled that Article 204 permits Member States to allow taxable persons to appoint a tax representative as the person liable for VAT and gives Member States discretion to establish the conditions and procedures governing that appointment. However, the wording of Article 204 does not require the representative to be involved in the taxable transactions themselves.

The GCEU examined Article 204 in its wider context, observing that the relevant provisions are designed to identify the person most suitable to be held liable for VAT in different circumstances, thereby ensuring efficient tax collection. The appointment of a tax representative serves that objective by providing the tax authorities with a more accessible point of contact within the Member State and facilitating the recovery of VAT from non-established taxable persons.

The GCEU further held that, although Member States may impose conditions and procedures relating to the appointment of tax representatives, they must respect the principles of legal certainty and proportionality. Requiring a tax representative to participate in the taxable transactions of the represented person would unnecessarily restrict the scope and effectiveness of the mechanism provided by Article 204 and could undermine the objective of efficient VAT collection.

In summary on this point, the GCEU concluded that Article 204 does not preclude a tax representative from being regarded as liable for payment of VAT, even where that representative is not involved in the taxable transactions carried out by the taxable person, provided that the representative has been duly appointed by that taxable person.

The GCEU went on to consider whether Article 205 prevents a tax representative from being held ‘jointly and severally liable’ for unpaid VAT where that representative merely handles VAT filing obligations for a taxable person established in another Member State and is not required to keep accounting records or issue invoices. In particular, whether such liability is compatible with the principle of proportionality when the tax authorities and courts are unable to assess factors such as whether the representative was involved in the taxpayer’s business activities, knew or should have known that VAT would go unpaid, or acted in good faith and took all reasonable steps to ensure compliance with VAT obligations.

The GCEU noted that the national provisions at issue impose liability automatically, regardless of whether the representative acted in good faith, was negligent, or had any involvement in the taxable person’s transactions. The GCEU considered that although Article 205 allows Member States to provide for joint and several liability, that power must be exercised in accordance with the principles of legal certainty and proportionality.

Measures adopted under Article 205 must not go beyond what is necessary to protect the public revenue. The GCEU considered that a system of strict liability is disproportionate where a person can be required to pay another person’s VAT debt without being able to demonstrate that they were not involved in the relevant conduct. By contrast, EU law permits liability where a person has failed to take reasonable steps to ensure that they are not participating in tax evasion. Factors such as good faith, due diligence, knowledge of the risk of non-payment, and the ability to influence or monitor the taxpayer’s activities are therefore relevant.

The GCEU concluded that Article 205 precludes a tax representative from being held jointly and severally liable for VAT where neither the tax authority nor the court can assess the representative’s involvement, knowledge, good faith, or the reasonableness of the steps taken to ensure compliance with VAT obligations.

The GCEU went on to consider whether the fact that the transaction in respect of which the VAT is due was carried out under the individual VAT identification number allocated to the taxable person by the Member State in which he or she is established or under that allocated by the Member State in which the VAT is due is decisive.

The GCEU recalled that EU VAT rules require taxable persons to register for VAT and obtain a VAT identification number in each Member State where they carry out taxable activities. These identification numbers help ensure the proper functioning of the VAT system by confirming taxpayers’ status, facilitating tax inspections, supporting accurate VAT collection, and helping determine where final consumption occurs.

Against that background, the GCEU considered whether the VAT number used for a transaction affects the liability of a tax representative. It noted that Article 204 allows a taxable person established in another Member State to appoint a tax representative to act as the person liable for VAT, and that this framework applies regardless of whether the taxable person has been issued a VAT number in the Member State where the VAT is due.

However, referring to its earlier conclusions, the GCEU reiterated that a tax representative cannot be held unconditionally and jointly liable for VAT debts where factors such as involvement, knowledge, good faith and diligence cannot be assessed.

The GCEU further held that the particular VAT identification number used for a transaction, whether issued by the taxable person’s home Member State or by the Member State where the VAT is due, does not affect the representative’s degree of involvement, knowledge or responsibility. Nor does it determine whether a tax representative may be held liable for VAT. Instead, liability depends on whether the circumstances specified in Articles 193, 200 and 204 of the VAT Directive apply. Accordingly, the VAT number used for the transaction is not decisive in answering the questions referred.

Finally, the GCEU considered whether Article 205, read in the light of Article 204(1), must be interpreted as meaning that a person may both be regarded as liable for payment of VAT and be jointly and severally liable for the payment of VAT.

The GCEU held that a tax representative appointed as the person liable for VAT under Article 204 cannot also be held jointly and severally liable for the same VAT debt under Article 205. While Article 205 allows Member States to impose joint and several liability on a person other than the person liable for payment of VAT, it applies only to third parties. Therefore, once a tax representative has been appointed as the person directly liable for VAT under Article 204, that representative cannot additionally be treated as jointly and severally liable under Article 205 for the taxable person’s VAT debt.

In summary:

• Article 204 must be interpreted as not precluding a tax representative of a taxable person established in another Member State from being regarded as liable for payment of the VAT, within the meaning of that provision, even though that tax representative is not involved in the taxable transactions carried out by the taxable person, provided that that tax representative has been appointed as such by that taxable person.
• Article 205, read in the light of the principle of proportionality, must be interpreted as precluding a tax representative who is not appointed as the person liable for payment of the VAT due by a taxable person established in another Member State, but who is responsible for carrying out, on behalf of a such a taxable person, VAT filing obligations, without having to keep accounts or issue accounting documents relating to the transactions made by that taxable person, from being held jointly and severally liable for the payment of the VAT due, where neither the tax administration nor the competent court is empowered to determine whether he or she is involved in the economic activity of the taxable person, whether he or she knew or ought to have known that the tax would go unpaid and whether he or she acted in good faith and took all the measures reasonably due to ensure compliance with the VAT obligations.
• The fact that the transaction in respect of which VAT is due was carried out under the individual VAT identification number allocated to the taxable person by the Member State in which he or she is established or under that allocated by the Member State in which the VAT is due cannot be decisive.
• Article 205, read in the light of Article 204(1) must be interpreted as meaning that a person appointed as the person liable for payment of the VAT under Article 204 cannot also be jointly and severally liable under Article 205.

Comments: The GCEU has confirmed that a fiscal representative may be appointed as the person liable for VAT under Article 204 of the VAT Directive, even if the representative has no involvement in the underlying transactions. Member States may impose VAT obligations on fiscal representatives acting for non-established businesses, provided the conditions for such appointment are satisfied. However, the Court drew a clear distinction between being directly liable for VAT as the appointed VAT debtor and being jointly and severally liable for another person’s VAT debt under Article 205. Article 205 is the authority for reverse charge provisions where the customer is held liable to account for VAT and cannot apply to an unconnected party.

The judgment also reinforces the principle of proportionality, requiring tax authorities to consider whether the representative knew, or should have known, of any VAT irregularities, acted in good faith, and took all reasonable steps to ensure compliance. A system that imposes automatic or strict joint liability without considering those factors is incompatible with EU law. The Judgment clarifies the extent of VAT obligations that may be imposed on fiscal representatives and highlights the safeguards afforded under EU law where representatives have taken reasonable compliance measures and were neither involved in nor aware of any underlying VAT fraud.

Wednesday 15 July

Judgment – T-268/25 Sampension Livsforsikring

Topics – VAT grouping eligibility

A Danish referral which asks whether the first paragraph of Article 11 of the VAT Directive, read in conjunction with the second paragraph thereof, is to be interpreted as precluding legislation of a Member State under which eligibility for creating a VAT group comprising persons not engaged in activity subject to registration or not engaged in economic activity, is subject to the condition that one person in the VAT group directly or indirectly owns 100% of the other person or persons in the VAT group. If question 1 is answered in the affirmative, does Article 11 have direct effect in the Member State, with the result that taxable persons are entitled to be registered as a VAT group in cases where the legislation of that Member State does not comply with that provision and cannot be interpreted in accordance therewith.

• T-361/26 Sandoz Hungária – A Hungarian referral which asks whether Article 90(1) of the VAT Directive must be interpreted as precluding national legislation, under which a pharmaceutical company which, through the national tax authority, pays ex lege a portion of its revenue obtained from the sale of pharmaceutical products to the national health insurance as payment for employing medical representatives, and which therefore does not receive full consideration for the sale of those products, is not entitled subsequently to reduce the taxable amount, despite the fact that the national health insurance uses the entirety of the amount paid to fund the discount granted to the insured individuals on the price of the pharmaceutical company’s pharmaceutical products.
• C-194/26 Private Secondary School Evlogi and Hristo Georgievi – A Bulgarian referral which asks, inter alia, whether Article 132(1)(i), Article 133 and Article 134 of the VAT Directive must be interpreted as not precluding the exemption from VAT of the supply of education services provided for commercial purposes by establishments that are not bodies governed by public law, where the establishment concerned provides education in accordance with State education standards in the subjects and subject areas that are taught in schools and covering the content of the curriculum applicable throughout the national territory (compulsory education). Also, must Article 132(1)(i) be interpreted as meaning that the organisation of additional education and lessons in school subjects such as foreign languages, mathematics, literature, sport, music, summer school – that is to say, education that is not part of the compulsory curriculum in accordance with recognised State education standards – which are freely chosen by pupils or their parents and which take place outside the timetable/the usual teaching hours and may be provided by another national or European commercial company in accordance with the principles of the free market and freedom of contract, cannot be classified as ‘school education’ and/or ‘closely related’ to the supply of the education service as the principal supply and therefore as being exempt from VAT.
• C-193/26 St. Kliment Ohridski Primary Private School – As per C-194/26 Private Secondary School Evlogi and Hristo Georgievi.

Topics – VAT exemption – whether Aligners are dental prostheses

HMRC v Align Technology Switzerland GmbH and Anor

The Upper Tribunal (UT) has released its decision in this case concerning the VAT liability of supplies of Invisalign clear aligners (the Aligners) made by Align Technology Switzerland GmbH (Align GmbH) and Align Technology BV (Align BV).

Aligners are removable orthodontic appliances used by dentists to reposition a patient’s teeth to correct misaligned teeth thereby improving the functionality of the patient’s bite. Each Aligner is bespoke and is specially designed by Align for an individual patient, based on a scan of the patient’s mouth and in accordance with the treatment plan prescribed by the patient’s dentist. Treatment plans may last six months or longer. Although the Aligners are removable, patients are typically advised to wear them for between 20 and 22 hours a day and only to remove them for eating and physical activity.

Align treated the supplies of the Aligners as exempt supplies of dental prostheses pursuant to items 2 and 2A, Group 7 of Schedule 9, VATA94. HMRC argued that the supplies were chargeable to VAT at the standard rate.

Section 31(2), VATA94 provides that the goods or services of a description being specified in Schedule 9 are exempt. Group 7 of Schedule 9 provides that the following are exempt from VAT:

• Item 2 – The supply of any services consisting in the provision of medical care, or the supply of dental prostheses, by: (a) a person registered in the dentists’ register; (b) a person registered in the dental care professionals register established under section 36B of the Dentists Act 1984.
• Item 2A – The supply of any services or dental prostheses by a dental technician.

Items 2 and 2A of Group 7 of Schedule 9 VATA94 implemented Article 132(1)(e) of the VAT Directive – the supply of services by dental technicians in their professional capacity and the supply of dental prostheses by dentists and dental technicians.

The legislation requires the dental prostheses to be supplied by a person registered in the dentists’ register or the dental care professionals register or by a dental technician. Align are not dentists or dental technicians but they do employ dental professionals registered in the UK.

The First-tier Tribunal (FTT) focused on whether Aligners qualify as 'prostheses' per the exemption for VAT. Although 'dental prostheses' lacks a formal definition in VAT legislation, the FTT interpreted it based on common language and the exemption's purpose, which is to ensure health-related products remain affordable. The FTT concluded that Aligners fit the definition of dental prostheses, as they are health-related products supplied during dental treatment.

HMRC's interpretation, which excluded orthodontic appliances from the exemption, was deemed overly restrictive and contrary to the exemption's intent. The FTT also noted that guidance from the EU VAT Committee, which suggested braces do not qualify as prostheses, was not definitive and should not dictate the tribunal's interpretation.

Ultimately, the FTT allowed the appeal, determining that Aligners are indeed dental prostheses eligible for VAT exemption, reinforcing the principle that health-related products should not be made more expensive by the addition of VAT.

HMRC appealed the decision of the FTT on a single ground, namely the FTT erred in its interpretation of the phrase ‘dental prostheses’ and thereby misapplied VATA94 to the Aligners. HMRC’s reasons given in the Notice of Appeal included that a ‘prosthesis’ is an artificial replacement for part of the body and a ‘dental prosthesis’ is an artificial item used to replace missing or damaged teeth – the Aligners are orthodontic appliances used to reposition teeth and, accordingly, are not ‘dental prostheses’.

The UT considered how the VAT exemption for ‘dental prostheses’ should be interpreted where neither EU nor UK VAT legislation provides a definition of that term. Relying on established UK and CJEU authorities, the UT noted that an undefined term must be interpreted according to its ordinary meaning in everyday language, while also taking account of the context in which it appears and the objectives of the legislation. Although VAT exemptions must be construed strictly because they are exceptions to the general rule that VAT is chargeable, strict interpretation must not deprive an exemption of its intended effect, and it must remain consistent with the principle of fiscal neutrality.

The UT recalled that the purpose of the exemption is to prevent health-related products from becoming less accessible due to increased costs arising from VAT. The UT accepted that Aligners are health-related products but emphasised that the purpose of an exemption cannot override or expand its wording. The exemption applies only to the supplies specifically described by the legislation, and not to all products that may serve a health-related purpose. Neither the objectives of the exemption nor fiscal neutrality can justify extending an exemption beyond its clear statutory language. The task is not to construe exemptions as narrowly as possible, but to give the exempting words a meaning they can fairly and properly bear in their legislative context. Accordingly, the question is whether Aligners fall within the specific meaning of ‘dental prostheses’ when interpreted by reference to its ordinary meaning, context and legislative purpose.

Dictionary definitions

The UT noted that while dictionaries are recognised as a legitimate aid to construction, case law emphasises that they cannot determine meaning on their own. Words must be interpreted in light of their context and the purpose of the legislative provision in which they appear. The UT rejected the argument that the purpose of the VAT exemption alone can justify a broad interpretation, noting that an item cannot fall within the exemption simply because it serves a health-related purpose.

The UT recalled that the parties disagreed on whether ‘dental prostheses’ should be interpreted as a single composite phrase or by first determining the meaning of ‘prosthesis’ and then considering the effect of the word ‘dental’. Although legal authorities recognise that composite expressions may have a meaning different from the sum of their parts, the UT concluded that, in the immediate case, it was appropriate first to consider the meaning of ‘prosthesis’, since dictionary definitions commonly define ‘dental prosthesis’ as a subset of that broader concept.

The UT reviewed a range of dictionary definitions. Most describe a prosthesis as an artificial replacement for a missing or malfunctioning body part, while some also refer to devices that assist bodily functions. Having considered the definitions collectively, the UT concluded that the ordinary meaning of a prosthesis is something that replaces, or acts in place of, a missing or malfunctioning body part and enables or assists the relevant bodily function. It was not persuaded that the term generally includes external devices that merely provide support or operate as part of a temporary course of corrective treatment.

Case law – the meaning of a prosthesis

The UT considered whether UK case law outside the VAT context provides useful guidance on the meaning of ‘prosthesis’. Although the cases reviewed arose in social security and employment law and are therefore not binding, the UT examined them to determine whether they shed light on the ordinary meaning of the term.

The UT concluded that the case law is persuasive and supports the distinction between a prosthesis, which replaces a missing or malfunctioning body part or function, and medical aids or devices that merely support, assist or improve bodily functioning.

The meaning of ‘dental prostheses’

Given its conclusions on the meaning of prosthesis, The UT considered that it is not easy to see why the addition of the word ‘dental’ should have the effect of widening this meaning. The addition of the word dental appears, at least at first sight, simply to mean that the prostheses which are referred to in the Exemption are those which operate in relation to teeth.

The UT reviewed several medical and dental dictionary definitions, noting that most define dental prostheses as artificial replacements for missing teeth or associated structures. While some dictionaries include orthodontic appliances or retainers as examples of dental prostheses, the UT considered this support limited and not sufficiently persuasive to alter the ordinary meaning of the term.

The UT therefore returned to its earlier conclusion that a prosthesis is something that replaces a missing or malfunctioning body part and performs its function. It found that adding the word ‘dental’ merely identifies the part of the body concerned and does not broaden the meaning of prosthesis. Accordingly, a dental prosthesis is a device that replaces or supplements missing or damaged teeth and performs the function of those teeth.

The UT also rejected the argument that the purpose of the VAT exemption should justify a wider interpretation. Although Aligners are health-related products and may be manufactured by the same technicians who produce items such as crowns or dentures, the exemption applies only to the specific supplies identified in the legislation. Applying its interpretation to the facts found by the FTT, the UT concluded that Aligners are not dental prostheses because they do not replace missing or broken teeth.

EU VAT Committee Guidelines and Working Paper

The UT went on to consider the relevance of EU VAT Committee Guidelines and a related Commission Working Paper in interpreting the meaning of ‘dental prostheses’ for VAT purposes.

The UT examined whether these documents could be used as aids to interpretation. While accepting that the Guidelines are not legally binding and contain little reasoning, it concluded that they remain relevant interpretative materials.

The UT rejected Align’s argument that the Working Paper could not be used as an aid to interpretation, holding that once admitted as evidence it was legitimate to consider its contents and determine the weight to be given to them.

Although the UT attached only limited weight to the Guidelines and Working Paper because they represent the views of an advisory committee rather than a judicial body, it found them supportive of its own analysis. In particular, they reinforced the distinction between dental prostheses and orthodontic devices such as braces or Aligners, supporting the conclusion that Aligners fall outside the exemption because they are dental devices rather than prostheses.

In conclusion, the UT found that ‘dental prostheses’ as used in the Exemption, means artificial items which replace missing or damaged teeth. They do not include the Aligners.

The UT held that the FTT made a material error of law in its interpretation of the VAT exemption and therefore set aside the FTT’s decision. It then considered whether the case should be remitted to the FTT or re-made by the UT itself.

HMRC argued that the decision should be re-made, while Align submitted that remission might be necessary if further factual findings were required. However, Align accepted that no further factual issues arose if HMRC’s interpretation of the exemption was correct.

The UT held that all necessary facts had already been established by the FTT and that no further evidence or fact-finding was required. As a result, there was no need to remit the case. Applying its own interpretation of the exemption, the UT re-made the decision and concluded that the term ‘dental prostheses’ does not include Aligners.

The UT therefore upheld HMRC’s view that Aligners do not qualify for VAT exemption for dental prostheses and are instead subject to VAT.

For further information please contact Julian Balson, Mitchell Moss, Holly Rowland or Russell Moore.

Topics – Construction services and materials – zero rating – relevant residential purpose

NHS Ayrshire & Arran Health Board v HMRC

The Upper Tribunal (UT) has released its decision in this case concerning construction services and materials supplied in the course of the construction of part of a building for a National Secure Adolescent Inpatient Service (NSAIS).

NSAIS is a secure unit constructed in the grounds of Ayrshire Central Hospital. NHS Ayrshire & Arran Health Board (the Appellant), sought partial zero rating in relation to what it considers is a distinct and separate part of NSAIS – the accommodation or Bedroom Wing, which was to be used only for a relevant residential purpose (RRP) pursuant to Schedule 8, Group 5, Item 2 (a), Notes (4 ) and (10), VATA94.

Schedule 8, Group 5, Item 2, VATA94 provides for zero-rating of certain supplies of construction services. Specifically, it states that zero-rating applies to the construction of, inter alia, buildings intended for an RRP.

Note (4) defines RRP to include various types of residential accommodations, such as homes for children, elderly care facilities, hospices, student housing, military accommodations, and monasteries, but excludes hospitals, prisons, and hotels.

Note (10) addresses scenarios where parts of a building are designated for residential or charitable use while other parts are not, stipulating how grants or supplies should be treated in such cases.

The Appellant argued that an RRP essentially concerns living accommodation and whether the accommodation is home for those who reside there, at least for the period of residence, and that is the case for the patients in the NSAIS. It is immaterial why a patient resides at NSAIS, HMRC had viewed and reviewed the matter in relation to ‘purpose’ rather than ‘use’.

It is the patients’ legal residence, they have their own bedrooms which they can personalise, they receive their mail there, they are treated by local GPs for general medical conditions, they are taught by Local Authority teachers; in essence, while in NSAIS they live in the Bedroom Wing as if it was their home (potentially for several years).

The Appellant also explained that no medical treatment is carried on in the Bedroom Wing except in exceptional circumstances, which is fundamentally different to any accommodation to be found in a hospital where medical treatment is carried on routinely and as a matter of course in the accommodation, whether on a ward or in a separate room.

HMRC disagreed, asserting that the zero rating in terms of Notes (4), and (10) is not available because NSAIS is a ‘hospital or similar institution’. NSAIS is not a building intended for use solely for an RRP within the definition at Note 4. Specifically, the facility is excluded from falling within the definition of having an RRP in that it is, by nature, a hospital and ‘hospital’ should be given its ordinary meaning. As that concept is ordinarily understood, the core feature of a hospital is that it provides medical treatment and care.

Central to the purpose of NSAIS is that diagnosis and treatment will be provided with a view to reducing and addressing patients’ symptoms, therefore, in HMRC’s view, the NSAIS differs from residential institutions in that it exists to provide medical intervention.

The First-tier tribunal (FTT) emphasised that patients at NSAIS are detained under court orders for medical treatment, which includes care and rehabilitation. They noted that while patients have personal bedrooms, the wing is not their legal residence, as the entire facility is designed for medical intervention. The FTT concluded that the wing is integral to the hospital's function, as treatment and care extend throughout the building, including the wing.

Ultimately, the FTT dismissed the appeal, stating that the bedroom wing is not solely intended for an RRP and is part of a hospital or similar institution, which negates the applicability of the zero-rating provisions.

The Appellant appealed the FTT decision on the following grounds:

• Ground 1: The FTT erred in law in concluding that the Bedroom Wing was not a ‘part of a building’ within Note (10). The FTT should have held that the Bedroom Wing was a ‘part of a building’ for the purposes of Note (10).
• Ground 2: The FTT erred in concluding that the intended use of the Bedroom Wing did not fall within any of Note (4)(a) to (g). It erred in relying on the reasons that: (i) not all the normal activities of living could take place there because the residents could not take meals in the Bedroom Wing and (ii) medical treatment took place there. The FTT should have held that the Bedroom Wing comes within either Note (4)(a) or (b) or (g) namely:(a) a home or other institution providing residential accommodation for children; (b) a home or other institution providing residential accommodation with personal care for persons in need of personal care by reason of old age, disablement, past or present dependence on alcohol or drugs or past or present mental disorder; or (g) an institution which is the sole or main residence of at least 90 per cent. of its residents.
• Ground 3: The FTT erred in concluding that the intended use of the Bedroom Wing (with or without the common kitchen and dining areas) is ‘use as a hospital’ so as to exclude the relevant construction supplies from zero-rating. The FTT should have held that an RRP is the ‘sole’ (or alternatively, primary) intended use of the Bedroom Wing so that it does not fall within the exception for use as a hospital or similar institution in Note (4).

Ground 1

The UT recalled that the Appellant had argued that the FTT had erred in law by failing to treat the Bedroom Wing as a “part of a building” for the purposes of Note (10). The FTT should first have determined whether the Bedroom Wing was a distinct part of the building and then considered whether it was used solely for an RRP. It argued that the correct test was physical and spatial, that the Bedroom Wing was clearly a discrete and identifiable area, and that earlier case law demonstrated that individual rooms or areas could qualify as a “part of a building” even where the building as a whole served a different purpose. HMRC considered that the FTT had not disputed that the Bedroom Wing was part of a building; rather, it had concluded that no part of the building was intended to be used solely for an RRP.

In agreement with HMRC, and reviewing the FTT decision as a whole, the UT held that the FTT had consistently treated the Bedroom Wing as a distinct and separate part of the NSAIS complex, directing itself to consider that area independently and making findings about its particular functionality and use. References to the Bedroom Wing being an “integral and inextricable part” of the wider complex related to its intended use rather than its physical status as part of a building. The UT therefore considered that the FTT had answered the composite question posed by Note (10) and had not made the legal error alleged. The authorities relied upon by the Appellant did not assist because they did not address the criteria for determining what constitutes a ‘part of a building’. Accordingly, Ground 1 of the appeal was dismissed.

Grounds 2 and 3

Dealing with Grounds 2 and 3 together, the UT summarised that the Appellant asserts that the FTT erred in concluding that the intended use of the Bedroom Wing did not fall within any of Note (4)(a), (b) or (g) and the FTT erred in law in concluding that the intended use of the Bedroom Wing was ‘use as a hospital’.

The Appellants argued that the FTT had misapplied the law in concluding that the Bedroom Wing was not intended solely for an RRP and that it should not be regarded separately from the wider hospital complex. In relation to Ground 2, the Appellants submitted that the Bedroom Wing’s primary function was residential accommodation under Note 4, and that the FTT placed undue weight on the facts that some everyday activities occurred elsewhere in the complex and that medical treatment continued while patients were in the Bedroom Wing. It also contended that the Bedroom Wing could qualify under Note 4(g) because many patients were legally required to reside there and, in practice, it was their only residence. For Ground 3, the Appellant argued that the Bedroom Wing was not intended for use as a hospital or similar institution, maintaining that any treatment-related activities occurring there were merely ancillary to its principal residential function. While accepting the FTT’s findings of fact, it argued that the tribunal had erred in law in the conclusions it drew from those facts.

HMRC disagreed, contending that the FTT was entitled to assess the Bedroom Wing in the context of the NSAIS complex as a whole, which operated as a hospital or similar institution. It argued that the Bedroom Wing was not itself a separate home or institution within the meaning of Note 4 and that the FTT was entitled to consider features that distinguished it from ordinary residential accommodation. HMRC also maintained that the FTT was entitled to conclude that the Bedroom Wing formed part of a hospital, having regard to its physical location, the provision and monitoring of treatment there, the medically qualified staff working within it, and the fact that patients were detained there by law for the purpose of receiving medical treatment.

The UT noted that it was common ground that the NSAIS complex as a whole was a ‘hospital or similar institution’ for the purposes of Note (4) and therefore could not itself qualify for zero-rating. The appeal instead turned on whether the Bedroom Wing, considered separately under Note (10), was intended solely for an RRP.

The UT considered that the ordinary meaning of ‘hospital’ should be applied and that, where the exception in Note (4) is potentially relevant, it is necessary to compare the RRP provisions with the exclusion for hospitals and similar institutions. The UT emphasised that some accommodation may appear residential but nevertheless fall within the exception where it forms part of a hospital providing medical treatment and associated care.

The UT rejected the Appellants' argument that the Bedroom Wing should be assessed entirely in isolation from the rest of the NSAIS complex. While there is case law that has found that parts of buildings can sometimes be considered separately, these did not involve the Note (4) exception and still depended on the wider context of the building’s use. The UT agreed with the FTT that the Bedroom Wing and the remainder of the complex were functionally interdependent. Patients lived in the Bedroom Wing, but important aspects of daily life took place elsewhere in the complex, and the medical treatment provided there formed part of an integrated course of treatment delivered throughout NSAIS. The UT also considered that the Bedroom Wing was not a standalone home or institution but formed part of the wider hospital.

The UT held that the FTT was entitled to conclude that the Bedroom Wing was part of a hospital or similar institution and therefore fell within the exception to Note (4). There was no material error of law in the FTT Decision.

The UT dismissed the appeal on all grounds.

Comments: This case demonstrates the complexities of VAT when it comes to property development. The VAT at stake can be high so any business should ensure appropriate VAT accounting and seek appropriate advice early so as to mitigate potential VAT costs.

For further information please contact Russell Moore or Mitchell Moss.

Topics – Input tax – validity of invoices – reasonableness of refusal of HMRC to accept alternative evidence

Plat UK Ltd

The First-tier Tribunal (FTT) has released its decision in this case concerning a decision by HMRC to deny the recovery of VAT due to the absence of valid invoices for the relevant supplies and because HMRC was not satisfied, on the basis of alternative evidence, that the claims should be allowed.

Plat UK Ltd (PU), is a VAT-registered company that purchased luxury goods, principally from Harrods and other high-end retailers, and resold them to consumers in South Korea. HMRC conducted a verification exercise and concluded that the company had claimed £470,894 of input VAT for periods 11/20 to 08/23 without holding valid VAT invoices. The evidence supplied consisted largely of retail till receipts, documents issued to individuals rather than the company, and invoices obtained retrospectively after HMRC had begun its compliance check. HMRC therefore denied the input tax claims and issued assessments.

PU appealed, arguing first that it did possess valid VAT invoices and, alternatively, that HMRC had acted unreasonably in refusing to accept alternative evidence under its discretion in regulation 29(2) of the Value Added Tax Regulations 1995.

This case concerns the requirement that a taxable person must hold a valid VAT invoice in order to deduct input tax. Sections 24, 25 and 26 of VATA 94 permit the deduction of input tax attributable to taxable supplies, section 24(6) allows regulations to prescribe the documentary evidence required. Regulation 14 of the VAT Regulations 1995 specifies the contents of a valid VAT invoice, including a description sufficient to identify the goods supplied. Regulation 29 further provides that a taxpayer must hold the required invoice when claiming input tax, unless HMRC exercises its discretion to accept alternative evidence.

The FTT reviewed prior case law which emphasises that the VAT invoice is a fundamental evidential requirement and that HMRC’s discretion is limited to deciding whether alternative evidence sufficiently establishes entitlement where a valid invoice is absent.

The FTT rejected PU’s argument that the Harrods invoices constituted valid VAT invoices. It considered that those invoices merely referred to departments or concessions with Harrods and did not identify the goods supplied. The FTT therefore found that they failed to satisfy Regulation 14(1)(g). It also rejected the suggestion that the invoices could be read together with corresponding till receipts to form a compliant ‘composite’ invoice. The FTT held that the legislation contemplates a single VAT invoice rather than multiple documents. More fundamentally, the Harrods invoices had only been obtained in January 2024, long after the VAT claims had been submitted, whereas Regulation 29 requires a taxpayer to hold the relevant invoice at the time the claim is made. Consequently, PU could not demonstrate that it held valid VAT invoices when exercising the right to deduct input tax.

A significant part of PU’s case relied on the earlier decision in Athena Luxe Ltd, where the FTT held that Harrods invoices could be considered together with till receipts so that the combined documents provided a sufficient description of the goods. The FTT expressly declined to follow that reasoning. It distinguished Athena Luxe on several grounds. First, the immediate case involved broader concerns than merely inadequate product descriptions; HMRC had genuine doubts about whether the supplies had been made directly to PU at all, given that purchases had been made by various individuals and through arrangements involving Global Shipping Master UK Ltd (GSM). Secondly, the Harrods invoices had not been held at the time the VAT claims were made, whereas the statutory requirement focuses on possession of a valid invoice when deduction is claimed. Thirdly, the FTT considered that Athena Luxe incorrectly treated multiple documents as a single VAT invoice, which was inconsistent with the wording of the Regulations and with the purpose of the discretion under Regulation 29(2). It therefore respectfully departed from that decision.

The FTT also upheld HMRC’s refusal to exercise its discretion under Regulation 29(2). It found that HMRC had reasonably concluded that the alternative evidence did not establish that PU itself was the recipient of the supplies. Purchases were often linked to named individuals, some were associated with Harrods Rewards cards intended only for personal use, and GSM invoiced PU for ‘buying’ services, suggesting that goods were being acquired through intermediaries. PU had also acknowledged that Harrods did not know the goods were being purchased for resale and had not requested VAT invoices until after HMRC’s intervention. In those circumstances, HMRC was entitled to regard the evidence as insufficiently reliable and to refuse the deduction.

In conclusion, the FTT dismissed the appeal in its entirety. It held that PU did not possess valid VAT invoices when it claimed input tax and that HMRC had acted reasonably in declining to accept alternative evidence.

Comments: This decision reinforces the importance of holding compliant VAT invoices at the time a claim is made and demonstrates that HMRC’s discretion under Regulation 29(2) will not ordinarily be exercised where the evidence leaves doubt as to who actually received the supplies. It also limits the significance of Athena Luxe, with the FTT expressly rejecting the proposition that an otherwise defective invoice can be converted into a valid VAT invoice by reading it together with a separate till receipt.

For further information please contact Andy Jones.

Nearly one year after announcing its new Policy on the VAT recovery position in relation to defined benefit (final salary) schemes in Revenue and Customs Brief 4/25, HMRC issued updated guidance in June 2026. HMRC has also now updated Funded pension schemes – VAT Notice 700/17. Sections 1.2, 1.3, 2, 3.1, 3.2, 3.3, 4.2.2, 4.3 and 5 have been updated. The list of attribution of services incurred in connection with funded pension schemes has been removed from the page.

Comments: In the original Brief, HMRC announced that, from 18 June 2025, it would no longer view investment costs as being subject to dual use. Instead, all of the associated input tax incurred would be seen as the employer’s and deductible by the employer, “subject to normal deduction rules”. The Brief was limited but implicitly suggested that an employer could do this via an onward charge or VAT grouping.

The updated manuals released in June 2026 were inconsistent but it appeared to be HMRC’s intention that employers are able to recover VAT incurred in full in relation to the management of defined benefit pension funds (subject to normal rules i.e. fully taxable etc) evidenced through invoices (C/O), payments and contracts in the employer's name; or an onward supply from trustee to employer. VAT grouping (and partial exemption) may also be used. References in the guidance to employers needing a contract when generally speaking this would not be possible for an employer from a pensions regulatory perspective causes complexity. Further, the position for trustees and whether they can recover VAT remains inconsistent in the guidance.

The latest Notice is particularly positive in that HMRC has stated that if the employer is reimbursed by the trustees or charges them for costs it incurs in managing the pension scheme (as long as the services are of the kind described in sections 2.2 and 2.3) then output tax should not be charged. The silence on this point in the manuals had left sponsoring employers concerned so this clarification is particularly welcome.

The Notice also makes clear for the first time that the ‘70/30’ split, a concession used by many sponsoring employers has been removed.

Overall, the updated manuals and Notice remain inconsistent, but in the main they support HMRC’s positive intentions to increase VAT recovery for employers. Given the inconsistencies, employers and trustees of defined benefit pension schemes should review the payment flows, transactions, invoicing and contractual arrangements in place against all of the guidance to quantify any potential VAT claim opportunity (invited by the original Brief). In addition, sponsoring employers and pension fund trustees must make sure they are in line with the new policy from 18 June 2025 as there is no transitional period. Given the guidance is inconsistent, we would recommend writing to HMRC (CCM, pensions policy or standard clearance) in line with GfC13 for clearance, particularly if no retrospective claim has been submitted and paid, to seek agreement of the position from 18 June 2025.

For further information, please contact Andy Jones, Mitchell Moss or Sarah Delaney.

HMRC has published a Policy Paper which will affect VAT-registered businesses that incur VAT on capital expenditure on the following:

• Land, buildings and civil engineering works
• A computer or an item of computer equipment

VAT incurred on expenditure on certain capital assets must be recovered in accordance with the Capital Goods Scheme (CGS). The purpose of the CGS is to ensure that VAT recovery on high value, long life capital assets reflects their taxable use over time. Under the scheme, businesses acquiring capital assets for their taxable business activities are entitled to recover the input tax incurred, subject to the normal rules. However, where the extent to which the assets are used for taxable activities changes over a set period, the CGS requires adjustment to the input tax reclaimed to reflect the change in use. This ensures that VAT is only recoverable to the extent to which the asset is used in making taxable supplies.

Assets currently covered by the CGS include the following:

• A computer or item of computer equipment if the capital expenditure is £50,000 or more
• Land, buildings and civil engineering works if the capital expenditure is £250,000 or more

The announced simplification introduces 2 significant changes to the scheme. From 29 July 2026, the following changes will take effect:

• Computers and items of computer equipment will be removed from the list of assets covered by the scheme
• The expenditure threshold for land, buildings and civil engineering work will increase from its current value of £250,000 (exclusive of VAT), to £600,000 (exclusive of VAT)

This measure aims to simplify the administration of the VAT system and reduce the administrative burden on small businesses.

Where an owner has incurred capital expenditure on land, buildings, civil engineering works or computers and computer equipment in respect of supplies of goods or services received, goods imported or goods acquired from a Member State before 29 July 2026, the changes made by this measure will not apply. The new threshold value and the removal of computers from the scheme will only apply where an owner has not incurred any capital expenditure on the item in respect of supplies of goods or services received, goods imported or goods acquired from a Member State before 29 July 2026.

Please also refer to The Value Added Tax (Amendment) Regulations 2026.

This Guidance explains when and how to cancel your Gaming Duty registration.

For further information please contact Andy Jones.

This Guidance explains what you need to do if you sell, store, distribute or handle vaping products by wholesale or retail in the UK.

Please also refer to:

• Preparing for Vaping Products Duty and the Vaping Duty Stamps Scheme, which has been updated with details regarding purchasing transitional duty stamps
• How vaping duty stamps work – updated to reflect a change in restrictions on the use of transitional stamps

For further information, please contact Craig Clark.

This Guidance provides details regarding the registered dealers in controlled oil (RDCO) scheme. Sections 5.9 and 5.17 have been updated to clarify how suppliers of marine fuel should determine whether a vessel is being used for a commercial purpose. The guidance also provides further clarification on indicators of suspicious use of rebated fuel and the circumstances in which concerns must be reported to HMRC.

Please also refer to:

• Relief from fuel duty for marine voyages (Notice 263)
• Fuel used in private pleasure craft and for private pleasure flying (Excise Notice 554)

For further information regarding excise duty please contact Craig Clark.

This Guidance provides a list of goods and services showing which rates of VAT apply and which items are exempt or outside the scope of VAT. The section 'Energy-saving materials installed in residential accommodation and certain charitable buildings' has been updated with information on which energy-saving materials are subject to VAT relief at 0% until 31 March 2027.

This publication provides details regarding the force of law notice for the Carbon Border Adjustment Mechanism (CBAM) and reference document. It supports secondary legislation and explains which direct emissions and production processes are relevant for CBAM goods.

For further information please contact Alwyn Hopkins or Laura Mariga.

Kenya

The President has assented to the Finance Act, 2026. Indirect tax measures include:

• Tax amnesty and waiver of penalties and interest – amnesty on penalties and interest arising from obligations relating to periods up to 31 December 2025 for which the entire principal is settled by 31 December 2026
• Import documentation requirements – requiring importers to obtain, retain and, upon request, provide export declarations or equivalent customs documents issued by the country of export as evidence of the lawful exportation of goods into Kenya
• Enhanced penalties for non-compliance with electronic tax systems
• Clarification on disbursements in supply of labour, outsourcing and employee placement services
• Exclusion of financial charges from taxable value under licensed/registered hire purchase transactions
• Expansion of the scope of VAT refunds
• Input tax relief on supplies to security agencies
• Adjustment of input tax upon exemption of previously taxable supplies
• Refund of tax on bad debts
• Tax invoice requirements
• Alignment with the Tax Procedures Act on tax avoidance schemes
• Increase for tax-free allowance on baggage for returning travellers
• Clarification on VAT treatment of financial services provided over a digital platform/by payment service providers
• Definition of a payment service provider
• Clarification on exemption of services of tour operators
• VAT Relief for financiers on repossessed loan collateral
• Amendment of status of various supplies
• Excise duty treatment of antique, vintage and classic vehicles
• Expansion of scope of excise refunds
• Other miscellaneous excise amendments

Uganda

The Tax Appeals Tribunal has delivered its ruling in Ericsson AB v. Uganda Revenue Authority, holding that the revenue authority could not treat differences between VAT and income tax amounts as undeclared taxable sales without properly accounting for timing differences, reconciliations and the absence of invoices evidencing actual taxable supplies. The Tribunal held that if the alleged variance was not supported by invoices, the amount should be treated as deemed or notional sales computed on a VAT-inclusive basis.

The Environment Committee has reported that it has backed extending the EU's carbon border adjustment mechanism (CBAM) to downstream goods and setting up a fund to support industry's low-carbon transition.

The Committee on the Environment, Climate and Food Safety adopted its position on proposed changes to the CBAM by 56 to 11, with 12 abstentions.

The MEPs agree with the Commission's proposal to extend the scope of the CBAM beyond basic materials to a long list of downstream products – finished steel and aluminium goods such as fasteners, wire, springs and household articles – but insist it must be based on transparent, quantitative methodologies. They also added an exemption for electricity flows from non-EU countries used by grid operators to keep networks stable.

Closing loopholes

On anti-circumvention rules, the MEPs clarified that the practice of “slightly modifying” goods must also cover slight processing and tightened the rule, so it targets only arrangements set up purely to “dodge” the CBAM, and not normal business decisions to lower a company's costs.

They also empowered the Commission to apply the true country of origin's default values where a pattern of circumvention is found. They deleted the Commission's proposed safeguard that would have allowed goods to be removed from the scope in the event of price shocks.

The committee also wants new rules for online sales to close an online imports loophole. It recommends a single weight-based limit be applied to a seller's shipments as a whole, rather than parcel by parcel, with new reporting duties, and retroactive liability for shipments that are split to stay under the threshold.

Finally, the MEPs propose simplified reporting for least-developed countries and a technical assistance framework but removed the Commission's option to count Paris Agreement Article 6 carbon credits against CBAM obligations, since this issue is likely to be discussed in the context of the upcoming revision of the EU emissions trading system (ETS).

Temporary decarbonisation fund

The Committee also adopted their position on the related temporary decarbonisation fund (TDF) to protect EU producers on export markets, by 59 votes to 16, with 6 abstentions.

The MEPs want financial support from the TDF to run from 2027 to 2029 and not only from 2028 as proposed by the Commission. As fertilisers are a strategic input for food security, they also want to open the fund to fertiliser producers and downstream users facing higher carbon-related input costs, with products such as urea, ammonium nitrate and ammonium sulphate added to the list of eligible goods.

Finally, all downstream operators – firms that use CBAM-covered goods as inputs in their production – should be eligible for support from the fund, while leftover revenue could be redirected to the EU's international climate finance commitments under the Paris Agreement instead of being returned to member states, as the Commission proposed.

Parliament is scheduled to adopt its mandate for negotiations with EU member states on the final shape of the bill during the September plenary session.

Please also refer to:

• Deal reached on new carbon leakage instrument to raise global climate ambition
• Carbon leakage – Climate Action
• CBAM: Parliament adopts simplifications to the EU carbon leakage instrument

For further information please contact Alwyn Hopkins or Laura Mariga.

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 (July) includes the following actions:

• The European Commission has sent a reasoned opinion to France for failing to meet its obligations to provide all the IT functionalities necessary to ensure the exchange of information between Member States as from 1 January 2025 requested by Directive (EU) 2020/285 on the special scheme for small enterprises. The Directive allows small enterprises to sell goods and services without charging VAT and alleviates their VAT compliance obligations. Moreover, small enterprises established in a Member State may get a VAT exemption when they sell in another Member State, just like small businesses based in that country. To facilitate this across the EU, IT systems should permit the exchange of information between Member States. According to the information at the disposal of the Commission, the French IT system does not currently provide all the functionalities needed to ensure the exchange of information necessary for the correct operation of this special scheme.