Weekly VAT News

Draft legislation and tax documents – indirect tax measures

On 13 July 2026, the government announced the publication of draft legislation, with tax information and impact notes and explanatory notes, ahead of inclusion in the next finance bill, to allow for technical consultation. There were also a number of tax consultations and responses to consultations published. The indirect tax measures included draft legislation on: air passenger duty, alcohol duty penalties, soft drinks industry levy, electric vehicle excise duty, landfill tax, VAT provisions for deposit return schemes, vehicle excise duty exemption for search and rescue vehicles, and reform of the customs rules for low value imports. The consultation period will close on 7 September 2026. Responses were published to consultations on the introduction of electric vehicle excise duty and reform of the customs treatment of low value imports. (Contact: Andrew Clarke)

RCB 6 (2026): VAT liability of the supply of temporary medical staff (locum doctors)

HMRC have published Revenue and Customs Brief 6 (2026) on the VAT liability of the supply of temporary medical staff (locum doctors). This follows the previous publication of Revenue and Customs Brief 9 (2025), concerning the Isle of Wight NHS Trust First-tier Tribunal decision, which held that the VAT exemption for the provision of a deputy for a person registered in the register of medical practitioners applied to supplies of staff (not just the supply of medical care as argued by HMRC), and to supplies of locum doctors, not limited to out-of-hours GP cover (as also argued by HMRC). RCB 9 (2025) stated that HMRC were not appealing the decision, and were reviewing their policy in this area, while also confirming that taxpayers may be able to make claims for overpaid output tax. HMRC’s new policy, as set out in RCB 6 (2026), is that supplies of General Medical Council (GMC) registered locum doctors “may fall within this exemption. This includes where locum doctors are supplied via an employment business”. RCB 6 (2026) states that the policy does not extend to other (i.e., non-GMC registered) locum doctors or to general staffing services. RCB 6 (2026) sets out a specific procedure for making claims and states that HMRC will review claims for overpaid VAT on a case-by-case basis, including consideration of unjust enrichment and whether VAT has been correctly accounted for throughout the supply chain. The RCB also notes that as supplies previously treated as taxable will now be exempt, there may be implications for the recovery of input tax, and the application of the partial exemption rules. (Contact: Chris Cherrill)

Align Technology Switzerland GmbH & Align Technology BV: VAT and aligners – UT

Align Technology Switzerland GmbH and Align Technology BV (herein referred to together as ‘Align’) make removeable orthodontic appliances used to correct misaligned teeth (Aligners). Align treated its supplies of Aligners as VAT exempt as supplies of dental prostheses within Items 2 and 2A of Group 7, Schedule 9, VAT Act 1994. HMRC considered that Aligners were not dental prostheses, and that supplies of Aligners should accordingly be standard rated. On appeal, the First-tier Tribunal concluded that the word ‘prosthesis’ can include devices that improve bodily function, and that VAT exemption for the supply of Aligners would be consistent with the objectives of the exemption and allowed Align’s appeal. The Upper Tribunal has allowed HMRC’s appeal on the basis that the FTT erred in its interpretation of the phrase ‘dental prostheses’ and thereby misapplied VAT Act 1994. In considering the points around statutory construction, dictionary definitions, and case law on the meaning of a ‘prosthesis’ and ‘dental prostheses’, and reviewing the EU VAT Committee Guidelines and relevant Working Paper, the UT concluded 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 set aside the FTT decision and HMRC’s appeal was allowed. (Contact: Phil Simmons)

NHS Ayrshire and Arran Health Board: zero rating of construction costs – UT

In 2020, NHS Ayrshire & Arran Health Board sought to treat the construction services and building materials for a National Secure Adolescent Inpatient Service (NSAIS) building as zero rated for VAT purposes. HMRC disagreed, and the Health Board appealed to the First-tier Tribunal. The FTT dismissed the appeal on the basis that the accommodation (a bedroom wing) was a hospital or similar institution, and was not intended to be used solely for a ‘relevant residential purpose’ (RRP) within item 2, Group 5, Schedule 8, VAT Act 1994. The Upper Tribunal has dismissed the Health Board’s appeal. The UT held that the FTT did not err in law by failing to consider that the bedroom wing was “part of a building”, but rather concluded that it was a “distinct and separate part of a building”, and, by applying the relevant tests, no part of the building was intended for use solely for a RRP. Furthermore, the UT held that the FTT did not err in law by holding that the bedroom wing was not a home (or similar) for children or those requiring care, or an institution which was the sole or main residence for at least 90% of its residents, nor by holding that the intended use of the wing was “use as a hospital”. Given the interdependence of its use, the FTT was entitled to consider the use and functions of the remainder of the complex of which the bedroom wing formed part. (Contact: Ben Tennant)

HMRC annual report and accounts and transformation roadmap update

On 9 July 2026, HMRC published their annual report and accounts for the year to 31 March 2026. HMRC reported total tax revenues of £966.4 billion in 2025/26, an increase of £90.4 billion compared to the previous year. VAT revenues were £186.9 billion, an increase of £8.4 billion, 4.7%, compared to 2024/25. HMRC brought in £50.2 billion of ‘compliance yield’, defined by HMRC as “the revenues collected and protected that would otherwise have been lost to the Exchequer if not for its interventions”. The report also comments on progress HMRC have made in improving customer services, with more people getting through on the telephone to an HMRC advisor and calls being answered more quickly. The report acknowledges that there is further to go in improving customer service. HMRC also published HMRC Transformation Roadmap - Progress Update 2026, setting out progress on the Roadmap’s aims of “improving customer service, closing the tax gap, and reforming and modernising HMRC”. (Contact: Donna Huggard)