Weekly VAT News

Innovative Bites Limited: Are Mega Marshmallows normally eaten with the fingers? – FTT

This dispute concerns whether Innovative Bites Limited’s Mega Marshmallows product (the Product) was “confectionery”, in which case the VAT zero rate applicable to food would not apply. Note 5 of Group 1, Schedule 8, VATA 1994 includes in the definition of “confectionery”, “any item of sweetened prepared food which is normally eaten with the fingers”. The First-tier Tribunal and Upper Tribunal found that, considering the viewpoint of a typical customer and giving “confectionery” its ordinary meaning, the Product was not “confectionery”. The UT considered Note 5 “akin to a rebuttable presumption”, and an inclusive definition to clarify potential doubt, and that a multi-factorial assessment may still be necessary. The Court of Appeal then ruled that the UT had erred in its interpretation of Note 5. The CA considered that Note 5 is conclusive, and absent absurdity, products described therein, including “sweetened prepared food which is normally eaten with the fingers”, are “confectionery”. The CA held that the FTT had failed to address whether the Product was “sweetened prepared food which is normally eaten with the fingers” and remitted that question to a differently constituted FTT. The parties agreed that the Product was “sweetened prepared food”, so the narrow issue for the FTT was whether the Product was “normally eaten with the fingers”. The FTT considered that “normally” requires that the Product is more often eaten with the fingers than not, that is, over 50% of the time. The FTT found that, in aggregate, the Product was “more frequently eaten by one of the non-finger ways than by one of the with-the-fingers ways” and therefore was not normally eaten with the fingers. As the original FTT had found that the Product was not “confectionary” in the ordinary sense, it did not fall within Note 5. The FTT allowed Innovative Bite’s appeal. (Contact: Andrew Roberts)

How VAT affects charities (VAT Notice 701/1) – update

HMRC have updated their guidance on How VAT affects charities (VAT Notice 701/1) to include, at section 5.5, guidance on the new VAT rules for business donations to charities which apply from 1 April 2026. In addition to goods donated to a charity for onward sale, from 1 April 2026, businesses will also not have to account for VAT when they donate goods to a charity for onward donation or for use in the charity’s non-business activities. The relief is capped at £100 per item, with a limit of £200 for certain higher value goods, such as household appliances and furniture. The new section of the notice sets out the valuation rules, and further guidance regarding eligible charities. The notice also notes that businesses donating goods are the beneficiaries of this measure, and must ensure that appropriate checks are carried out and records maintained. It sets out the types of information that should be recorded and made available to HMRC in the event of an audit. (Contact: Nick Comer)

CBAM – Draft regulations

The Carbon Border Adjustment Mechanism (CBAM) will place a carbon price on specified goods imported into the UK. CBAM will come into effect on 1 January 2027. Following the consultation on the draft regulations regarding the administrative aspects of CBAM, HMRC have now published a technical consultation on further draft CBAM regulations relating to the calculation of embodied emissions, the monitoring and verification of emissions data and associated record-keeping requirements. The consultation seeks feedback from stakeholders to ensure the regulations deliver the policy correctly and effectively for CBAM to operate as intended. The consultation will close on 21 May 2026. Alongside the draft regulations, a draft notice that will have force of law is also available. HMRC have also published a page containing CBAM communications resources. (Contact: Zoe Hawes)

E-invoicing: SME usage and attitudes – HMRC research

At Budget 2025, the government announced that electronic invoicing will be mandatory for VAT invoices from 2029, and that an implementation roadmap will be published at Budget 2026. The government undertook to work with stakeholders to develop the detail of the e-invoicing regime. HMRC have now published research into small and medium sized enterprises’ (SMEs) use, awareness, and perception of e-invoicing. The research was carried out in two stages. A quantitative stage involved a telephone survey of 800 SMEs on the prevalence and awareness of e-invoicing. A qualitative stage then explored attitudes towards e-invoicing with 45 in-depth interviews. The research found that SMEs were broadly familiar with the concept of e-invoicing, but uptake was low, with only 29% of the telephone survey respondents reporting that they use e-invoicing. While the SMEs interviewed could identify potential benefits of e-invoicing, there were a number of concerns including software compatibility and lack of ability to customise their invoices. “Overall, interviewed businesses felt the barriers to adopting or expanding their use of e invoicing outweighed the potential benefits.” The research concludes that without a mandate or industry-wide movement, voluntary adoption of e-invoicing by non-users in the near future seemed unlikely, but that greater awareness and understanding could help increase uptake. HMRC state that they have used the findings of the research to inform the development of e-invoicing policy. The findings will also inform communication campaigns and guidance. (Contact: Giuseppe Ciampa)

Dbriefs webcast

On Tuesday, 14 April at 12.00, there will be a webcast on Platforms and GenAI: How can tax and legal teams provide strategic value? Digital platforms coupled with generative AI applications are transforming business operations and the role of tax and legal teams. Our panel will discuss the tax and legal issues and how GenAI can be a catalyst to business transformation.