VAT Insights - March 2025

So, it appears that President Trump may consider that VAT is a form of tariff that may warrant retaliatory action by the United States. This will probably come as something of a surprise to anyone working in indirect tax. One form of VAT is, of course, import VAT charged on the importation of goods into the UK, EU etc. And this requires the importer to pay VAT on the value of the goods imported. However, there are two very significant differences between import VAT and a tariff or customs duty. Firstly, if the import is made by a business, then the import VAT will qualify as input VAT for that business which it can deduct or recover where it makes taxable onward supplies. Indeed, a VAT registered businesses is able to account for import VAT on its VAT return under the postponed accounting procedure, meaning that it can recover import VAT on the same VAT return as it is incurred, rather than having to pay it upfront and then recover it at a later time. Secondly, even where the import VAT cannot be recovered (either because the business makes exempt supplies or the import is made by a final consumer), then the import VAT is simply ensuring a level playing field between domestic and overseas suppliers of the same goods. Without import VAT, overseas suppliers would be at a significant advantage to domestic suppliers due to the absence of the need to charge 20% VAT on their sales. As such, VAT is quite the opposite of a “discriminatory” tax. Hopefully, sense will prevail in this case.

In this edition, we also cover the following developments:

• A look at the potential impact of the broader America First trade policy, especially on international supply chains and transfer pricing issues.
• The government’s consultation on the possible introduction of an e-invoicing standard.
• An FTT decision confirming that supplies of studio space to artists was part of a wider, standard rated supply of services.
• An High Court decision on the scope of HMRC’s concession for catering provided by a Student Union, warning against the over-analysis of straightforward words such as “bar”.
• A contrasting FTT decision that it did not have jurisdiction to entertain arguments that HMRC should be bound by the terms of its concession, despite the taxpayer falling within its term.

In addition, we produce more detailed reports on the most significant tax developments so if you scroll to the bottom, there's a list of the most important issues we have covered, with links to our more detailed reports.

If you are interested in finding out more about the below or have a specific indirect tax query, please don't hesitate to get in touch. Our contact details are at the bottom.

International tax impact of the America First trade policy

It is widely recognised that a stable and predictable tax environment helps to provide the confidence needed to encourage investment, innovation, and growth over the long term. However, the adoption of an “America First” Trade Policy brings uncertainty for multinationals around current US policies and possible counter measures by other jurisdictions, both in terms of trade and the international taxing rules under discussion at the OECD and the UN. The America First policy may lead to the proliferation of tariffs or import duties and the previously agreed OECD Two Pillar solution to the operation of the international tax rules no longer has the support of the United States. With the US no longer intending to implement the Pillar One proposals, there is no longer an agreed basis for removing existing unilateral digital service taxes (DSTs) and many other countries may look to impose their own, new DSTs. The US sees such taxes as discriminatory on the basis that they are largely aimed at the US tech giants and so may well look to impose its own retaliatory measures, again possibly in the form of more tariffs or higher taxes.

Our Insights article considers the possible impact of the America First Trade Policy on international taxation, the risk of disruption to supply chains and what can and should businesses be looking to do in response to the uncertainties it has given rise to. It may be that there are opportunities to simplify supply chains, for example, to mitigate, as far as possible, the cost of tariffs. Even where that is not the case, there is the question of allocating those risks within the global value chain of the business and ensuring that the contractual framework and transfer pricing policy is clear and consistent in its application in relation to such issues.

You can also listen to the recording on our recent webinar on the impact of the new US administration on global trade by clicking on this link.

Read our Insights article in full here

UK e-invoicing consultation

The EU has been grappling with the knotty issue of e-invoicing and real time reporting for quite some time now as part of its VAT in the Digital Age (ViDA) proposals. It now appears that the UK is going to start the process of catching up. HMRC and the Department for Business and Trade have published a consultation on UK e-invoicing to gather views on standardisation and increasing adoption of e-invoicing across UK businesses, automating the exchange of invoices between buyers and suppliers, a process that can be used to support tax reporting and compliance.

The consultation runs until 7 May 2025 and responses should be sent to einvoicingconsultation@hmrc.gov.uk. In addition to the consultation, HMRC are also intending to run business roundtables and other events through which businesses can contribute to future policy development. Those interested in attending these events should contact: einvoicingengagement@hmrc.gov.uk. Responses will be used to inform future decision making on this issue.

It is clear that this is the first stage in a potentially lengthy process aimed at deciding whether, and if so how, the UK should introduce a standardised e-invoicing system. The consultation provides no defined timeline and no decision has yet been made on whether or how to take this forward. However, the government has previously stressed the benefits of digitalisation for closing the tax gap and it would be a surprise if these proposals were not taken forward in due course.

Read our Insights article here

Supply of land part of a wider taxable supply

The decision in Sarabande v HMRC [2025] UKFTT 93 is an interesting application of the single supply rules applying to the provision of a licence to occupy land so as to take it outside the scope of VAT exemption. The case itself is somewhat complicated by the conflicting claims by the taxpayer and its advisers and the lack of clear documentation in the case (which certainly contributed to HMRC being misled as to the actual factual matrix), but involved HMRC refusing a claim by a charity, SB, to recover input VAT on the refurbishment of a property it owned.

The FTT considered that the supply of the right to occupy studio space in a building was being made by SB to artists as part of a wider package of benefits provided by an Accelerator Programme. In addition to studio space, artists benefitted from a package of measures such as industry advice and support, equipment and the opportunity to promote and sell their work. The FTT concluded that this was not simply a passive supply of land. SB was supplying the entire Accelerator Programme to artists of which a supply of land was only a part. Although this was a central element, it was only one element with all the other elements being inseparable. As this was not simply a passive supply of land, it was not an exempt supply within VATA 1994 Sch 9 Group 1.

Read the decision in full here

Catering at student bars

What is a “bar”? Most of us would probably consider that we know what a bar is. Anglian Ruskin Students’ Union, however, sought to persuade the High Court that is Union café (to use a neutral term) called “92” was not a bar, despite selling alcohol, describing itself as bar in promotional literature and having a food menu entitled “Bar 92 Menu”. This was to bring themselves within the scope of HMRC’s concession in Notice 709/1 extending exempt treatment of catering by Universities to Student Union bodies, provided not supplied at a “bar”. The Union contended that it did not run a bar on the basis that a bar was not a place that supplied catering at all (or alternatively there should be some proportional split on the basis of the ratio of supplies of alcohol to non-alcohol).

The decision in R (on the application of Anglia Ruskin Students’ Union) v HMRC [2025] EWHC 296 contains a useful caution against over-analysing the meaning of ordinary words. “Our training means that as lawyers and judges we cannot resist seeking to further define words which appear in written documents and to then present our self-generated definitions as works of art. That temptation should be resisted.” This was a case where 92 was described and advertised as a bar and there was no escaping the conclusion that HMRC were correct to treat it as a “bar” outside the terms of their concession.

Read the full decision here

ESCs and rights of appeal

Unlike the Anglia Ruskin Students’ Union case above, the management company of a residential block in Chelsea sought to challenge the application of an extra-statutory concession (ESC) not by way of judicial review in the High Court, but by way of statutory appeal to the FTT. In this case, Chelsea Cloisters Management Ltd v HMRC [2025] UKFTT 205, the taxpayer argued that it fell within the scope of a concession extending the exempt VAT treatment of service charges to occupiers of residential property. This concession was designed to prevent a mismatch between supplies of property services as part of the terms of a lease (exempt) and in certain other situations where mandatory service charges arose. It applied to "mandatory service charges or similar charges paid by the occupants of residential property towards the upkeep of dwellings or blocks of flats in which they reside".

The FTT has, however, held that it simply did not have jurisdiction to consider the application of the ESC as part of an appeal against decisions to register the taxpayer for VAT and require VAT to be accounted for on its supplies of services to occupiers of the property. These statutory appeals under VATA 1994 section 83(1)(a) and (b) were limited to questions of whether the taxpayer was required to register and whether VAT was chargeable. HMRC’s ESC did not affect the answer to those questions. The proper approach would be for the taxpayer to make a judicial review claim arguing that HMRC’s failure to apply its concession contravened its legitimate expectation that it would be taxed in accordance with the ESC.

Despite deciding that it did not have jurisdiction, the FTT did however go on to consider what it would have decided had it had jurisdiction. In fact, it concluded that the taxpayer did fall within the terms of the concession and, despite not having shown detrimental reliance on the ESC, would have been entitled to rely on it. The case may be a short-term win only for HMRC, therefore. Expect to see the taxpayer in this case continue its currently stayed judicial review claim in the High Court.

Read our Insights article in full here

Other issues we have recently covered

Supreme Court adopts narrow approach to construction of Treaty

The Supreme Court has adopted a narrow interpretation to the construction of provisions of the UK/Canade Double Tax Treaty and held that “payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources” did not include payments which were, in effect, to a person who economically benefitted from the exploration of a UK oil field but which did not itself hold the licence to exploit the field: Royal Bank of Canada v HMRC [2025] UKSC 2. The Court has rejected, by a majority of four to one, arguments based on economic reality that payments to a person benefiting from a right to have another person work a field could be described as “payments as consideration for the working of, or the right to work” the oil field.

Reserved Investor Fund: new Regulations

The UK government has published new Regulations enhancing the commercial viability of the new Reserved Investor Fund (RIF). The Regulations come into force on 19 March 2025 - the same time as the Co-ownership Contractual Schemes (Tax) Regulations 2025 - and underpin the introduction of the new Reserved Investor Fund, a UK-based investment fund vehicle, which is structured as an unauthorised co-ownership alternative investment fund (AIF).

Tax podcasts

Our contentious tax podcast series covering tax controversy and transfer pricing issues can be found here. More general tax podcasts can be found here.