Weekly VAT News

Impact Contracting Solutions Limited: Mini-umbrella company fraud – CA

Impact Contracting Solutions Limited (ICSL) pooled the services of some 3,300 mini-umbrella companies (MUCs), which supplied labour. HMRC considered that the arrangements between ICSL and the MUCs were contrived, and that the MUCs had failed to account to HMRC for VAT charged on their supplies to ICSL. HMRC denied ICSL the right to recover VAT charged by the MUCs (applying Kittel), on the basis that the supplies were connected with the fraudulent evasion of VAT and that ICSL knew or should have known that. HMRC also informed ICSL that its VAT registration would be cancelled, on the basis that ICSL’s VAT registration was being used to facilitate fraud, based on the Ablessio principle. ICSL appealed against the denial of input tax recovery and the deregistration decision. As a preliminary issue, ICSL argued that Ablessio only applies to persons fraudulently defaulting on their own obligations (not facilitators of fraud), and that even if it did extend to facilitators, it would only apply where the facilitator had actual knowledge of the fraud. The Court of Appeal has ruled that HMRC have the power to deregister a taxable person where that person takes part in transactions connected with the fraudulent evasion of VAT, and knew or should have known that. The power to deregister can apply even if the person also made supplies that were unconnected with fraud. Deregistration must be proportionate. In these circumstances, deregistration would not breach the EU VAT principles of proportionality, fiscal neutrality, or legal certainty (which still applied, as the matters in question took place prior to Brexit). Accordingly, ICSL’s appeal on this preliminary issue of law was dismissed. Whether the particular facts of ICSL’s circumstances would justify deregistration remains to be considered. (Contact: Adam Routledge)

Late payment penalties – Regulations

As announced in the Spring Statement 2025, the Finance Act 2021 (Increase in Schedule 26 Penalty Percentages) Regulations 2025 have been made to increase late payment penalties for VAT taxpayers (and income tax self-assessment taxpayers as they join Making Tax Digital). The new rates will be 3% (from 2%) of the tax outstanding where tax is overdue by 15 days, plus 3% (from 2%) where tax is overdue by 30 days, plus 10% (from 4%) per annum where tax is overdue by 31 days or more. The regulations will come into force on 31 May 2025. (Contact: Andrew Clarke)

Deloitte Global Tax Policy Survey

Deloitte surveyed more than 1,100 tax and finance executives for the 2025 Global Tax Policy Survey, to explore key emerging topics through the lens of the global policy themes shaping the tax landscape. As in the 2024 survey, Transparency and Reporting and the Digitalisation of Tax are reported as having the greatest impact on respondents’ businesses. Sustainability is in third place (rising from fifth in the 2024 survey) followed by International Tax Reform and the Future of Work. With respect to the digitalisation of tax, most respondents continue to report movement towards the OECD’s Tax Administration 3.0 (digitalised) model in their countries. The main benefit of this model is considered to be more collaborative relationships with tax authorities. However, there are also concerns about increased costs and complexity, particularly with respect to automated processes, such as e-invoicing. The development of AI-based tax compliance software is seen as having the potential to deliver improved accuracy and compliance, with less confidence that it will reduce costs, given the initial investments required. The survey also indicates rising awareness of discussions on whether and how AI itself should be taxed. Despite 2025 being a year of significant change and uncertainty, with tax functions needing to prioritise issues for action, the survey reveals many areas of stability and continuity, with tax functions needing to clarify where ‘business as usual’ is functioning well, and where a different direction may be required. (Contact: Donna Huggard)