Top 5 VAT developments - March 2025

1. Hastings Insurance Service - Potential VAT reclaim opportunity for the Insurance Sector

The First-tier Tribunal (FTT) in Hastings Insurance Services has created a potential opportunity for some in the insurance sector to make claims for under-recovered input tax. In brief, the Tribunal decided that an anti-avoidance provision introduced to limit VAT recovery for insurance intermediary services rules went further than was permitted under EU law and was therefore invalid.

In practice: The decision has application for transactions at least up to the end of 2023, and the opportunity may arise where a UK business (e.g. a service company) has provided insurance intermediary services to a non-EU customer (e.g. an insurer); and the party to be insured is in the UK.

2. Innovative Bites - Court of Appeal narrows scope for zero-rating sweetened food

The Court of Appeal returned its Judgment in Innovative Bites Limited, better known as “that case about big marshmallows(!)”. The Upper Tribunal had previously decided that the marshmallows were not confectionery and could be zero-rated. HMRC's appeal against this interpretation was successful, and the case must be heard again by the FTT.

In practice: The Court of Appeal's interpretation of the VAT legislation is more restrictive than the Upper Tribunal, and it will be more difficult to zero-rate sweetened food products that are on the borderline of “confectionery”.

3. When can you rely on a previous HMRC decision?

In 2024, Queenscourt Limited lost its case at the FTT concerning dip pots and whether they formed part of a single supply of takeaway food. The taxpayer has now been granted permission to argue “legitimate expectation”. This argument concerns HMRC's row back on a previous decision to repay VAT.

In practice: When HMRC goes back on something they have previously implied, said or done, it can be a minefield to negotiate your options. A key point to note is that just because HMRC has previously conducted a compliance review, it doesn’t mean they have “signed off” on your VAT affairs.

4. VAT in the Digital Age (“ViDA”) adoption

On 11 March 2025, the Council of the European Union adopted the VAT in the Digital Age (ViDA) package of measures. The ViDA package will be progressively rolled out until January 2035. Key dates include the extension of the single VAT registration in July 2028, the mandatory launch of measures for the platform economy in January 2030 and digital reporting and e-invoicing requirements in July 2030.

In practice:Whilst the rules are to be phased in over the medium term, businesses should consider the likely implications of the announcement and how they will affect existing processes and systems requirements. Whilst these are EU measures, UK businesses should stay updated on the UK’s ongoing e-invoicing consultation, which runs until May.

5. Bolt - Upper Tribunal upholds decision that on-demand private hire is subject to margin scheme

The Upper Tribunal has upheld the First-tier Tribunal’s decision that Bolt’s on-demand private hire vehicle service fell within the Tour Operator’s Margin Scheme (TOMS). Consequently, VAT was due (broadly) on the profit margin achieved rather than the full amount paid by its customers.

In practice: This is a very important decision for the private hire sector. It is also an important decision clarifying the application of the TOMS more broadly. Amongst other points, it confirms that the TOMS can apply to businesses that are not typical “tour operators”.  If your business buys in and resupplies travel and/or accommodation (even if it is not a central part of your activities) you should have thought about the TOMS.

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