Weekly VAT News

Victoria Oil & Gas Plc: VAT recovery by holding company – FTT

This dispute concerned HMRC assessments for overclaimed input tax issued against Victoria Oil & Gas Plc (VOG). VOG, a holding company, made supplies for consideration in the course of an economic activity to its overseas subsidiaries (collectively GdC). Such supplies would have been taxable if made in the UK and therefore gave a right to VAT recovery. However, the principal issue before the First-tier Tribunal was whether the VAT incurred was directly and immediately linked to the supplies made to GdC, or rather, charges made to other subsidiaries which constituted a non-economic activity, and therefore was VOG’s business wholly taxable entitling it to full VAT recovery. Before considering the substantive issue, the FTT first focused at length on whether the assessments were made to HMRC's “best judgment”. The FTT found that the HMRC officer, having repeatedly sought information over an extended enquiry and received inconsistent explanations, undertook an honest and genuine attempt at a reasoned assessment. As such, the assessments were valid as best judgment. In respect of the principal issue, the FTT found that costs recharged in respect of the management, administration and operation of GdC, and the costs relating to litigation/disputes affecting GdC's business, had the requisite direct and immediate link to VOG's taxable supplies to GdC and were recoverable. However, other litigation and legal costs not linked to GdC’s business were not recoverable as no evidence established a reciprocal taxable supply. Consequently, in respect of the “wholly taxable” issue, the FTT concluded that although GdC was the group's only revenue-generating asset, VOG also incurred costs and devoted resources to other, non-productive subsidiaries without consideration or expectation of remuneration. Given this non-economic activity VOG, was not entitled to recover all of the VAT incurred. The appeal was allowed in part, with the parties left to agree the apportionments. (Contact: Andrew Clarke)

Draft Legislation: Plastic packaging tax – chemical recycling and adoption of a mass balance approach

HMRC have published a consultation on the draft legislation and supporting document for the Plastic Packaging Tax (PPT) mass balance approach (MBA) for chemical recycled plastic. The draft Regulations set out the detailed provisions and conditions that businesses must meet if they wish to use an MBA to account for chemically recycled plastic for PPT purposes from 1 April 2027. This includes requirements relating to attribution methodology, certification, auditing, monitoring and record keeping. The draft reference document sets out the methodology for applying dual-use factors where required. The default values will be confirmed before the final legislation and reference document are published. The consultation seeks views on the draft legislation and supporting document to ensure they deliver the policy as intended. The consultation closes on 21 December 2026. (Contact: Zoe Hawes)

HMRC internal manual – VAT Deregistration  

HMRC have substantially rewritten their deregistration manual - VATDREG10000 – Deregistration allowed - which provides guidance on the cancellation of registration under Schedule 1 to the VAT Act 1994. The update provides further detail on the differences between voluntary deregistration (paragraph 13(1)), where cancellation can only take effect from the date of the request or from a later date as agreed, and compulsory deregistration (paragraph 13(2)), where cancellation can take effect from the date on which the business has ceased to be registerable, or at such later date as may be agreed. The guidance also confirms that retrospective deregistration under paragraph 13(2) is unavailable where the person remained entitled to registration at the time the cancellation would otherwise have taken effect.