Weekly VAT News

Littlewoods Limited: Attribution of input tax – FTT

Members of the Littlewoods Limited VAT group (herein referred to as ‘Littlewoods’) are online retailers. Littlewoods also makes supplies of financial services, namely financing of purchases and insurance cover for products purchased. Littlewoods made claims to HMRC to recover in full input tax incurred on the costs of photographing specific products for their websites. HMRC refused the claims, on the basis that an apportionment was required, as the costs were incurred to promote both (taxable) retail sales and (exempt) financial services. The First-tier Tribunal has upheld Littlewoods’ appeal, finding that the costs were properly attributed to Littlewoods’ taxable supplies only. The FTT noted that the majority of Littlewoods’ customers chose a payment method that did not involve the payment of interest, unlike the circumstances in N Brown, a FTT decision that also concerned an online retailer offering credit for purchases. Irrespective of that point of difference, the FTT considered the tribunal in N Brown applied the wrong legal test, by looking at whether there was a direct link between inputs and outputs on a “business macro level”, instead of on a “micro transactional level” as favoured in the later Court of Appeal judgment in Royal Opera House. The FTT considered that the photographs displayed the products for sale, and did not promote the credit or insurance services, and concluded that the photography costs were incurred exclusively in the making of taxable supplies of the retail goods. Any link to the exempt financial services of credit or insurance was “at the most, indirect but … probably non-existent”. The FTT allowed Littlewoods’ appeal. (Contact: Donna Baker)

RCB 1 (2026): Removal of linked goods concession

HMRC have published Revenue and Customs Brief 1 (2026) on the removal of the linked goods concession. Under the Extra Statutory Concession (ESC) in paragraph 3.7, VAT Notice 48, a supplier may account for VAT on minor promotional items at the same VAT rate as the main item, subject to certain conditions, including that the minor items are linked to the main supply and sold with it for a single price. The RCB states that “the supplies previously eligible to be treated as single supplies under the concession should be treated as single supplies under the legislation, as confirmed by existing case law”. Accordingly, HMRC have concluded that the ESC is no longer needed, and are withdrawing it. For HMRC’s policy on single and multiple supplies, businesses are referred to HMRC’s Supply and Consideration manual at VATSC11113 - Supply: Single and multiple supplies: HMRC’s approach: The general approach. The RCB confirms that HMRC’s policy has not changed, and that applying the tests set out in VAT11113 will lead to the same outcome as would have been reached under the revoked concession. “The withdrawal of the concession is not intended to introduce new compliance obligations or change the VAT treatment of such supplies.” HMRC will treat most small value supplies, even if otherwise considered distinct and independent, as part of a single supply if they are ancillary to the main supply or so closely linked as to form a single, indivisible economic supply. (Contact: Donna Huggard)

EU Deforestation Regulation

On 4 December 2025, the European Commission announced that changes had been agreed to the EU Deforestation Regulation. The EUDR aims to ensure that key goods placed on the EU market will not contribute to deforestation. The EUDR prohibits certain commodities, and products derived from those commodities, from being placed on or exported from the EU market unless certain deforestation-free requirements are met. The changes were: to postpone the application of the EUDR by one year for large and medium businesses, to 30 December 2026, with a further six months for small and micro businesses; to ease due diligence requirements; and to remove printed books, newspapers and other printed material from the scope of the EUDR. The proposed changes were subsequently adopted, and published in the Official Journal on 23 December 2025. (Contact: James Simpson)

Trade policy and supply chains – Deloitte article

Our latest Deloitte Insights article looks at Why is navigating trade policy essential to building supply chain resilience? The current tariff environment has highlighted the need for UK businesses to navigate evolving trade policies to build resilience within supply chains. The article discusses why trade policy matters more than ever, with governments increasingly using trade policy as a strategic tool to protect industries, secure supply chains, and address geopolitical challenges, thereby creating new complexities for UK businesses. The article then discusses the importance of supply chain resilience, with strengthening supply chain visibility, diversifying supplier networks, and incorporating tax-efficient strategies key to mitigating risks and ensuring long-term competitiveness.

This week’s CJEU VAT calendar

On 15 January, there will be an Advocate General opinion in Stellantis Portugal on VAT and transfer pricing.