Weekly VAT News

Hotel La Tour Limited – VAT recovery on fundraising share sale – SC

To fund the development of a new hotel in Milton Keynes, Hotel La Tour Ltd (HLT) sold its existing hotel in Birmingham by way of the sale of shares in a subsidiary which owned the hotel. HLT sought to recover the VAT incurred on the marketing and legal costs associated with the sale on the basis that the relevant services were directly and immediately linked to its downstream taxable activities, namely developing and operating the new hotel. HMRC denied VAT recovery on the basis that the costs related to the exempt share sale. The First-tier Tribunal and the Upper Tribunal found in HLT’s favour, and the Court of Appeal found in favour of HMRC. The Supreme Court has upheld the CA’s judgment. The SC found that there was a direct and immediate link between the inputs and the sale of the shares, rather than the overall business, and since that share sale was exempt, the VAT was not deductible. The SC agreed with the CA that the FTT and UT erred in their application of case law, by relying on the way in which the price of the shares was set (the ‘costs component’ concept) to reject the possibility of a direct and immediate link between the inputs and the share sale. The SC also rejected HLT’s argument that recent CJEU jurisprudence has erased the distinction between exempt and out of scope share sales. Further, the SC confirmed that recent CJEU cases had not modified the direct and immediate link as it applies to share sales to focus on the purpose of the transaction, i.e., what the funds were to be used for. Finally, the SC dismissed HLT’s argument that, as HLT’s supplies of management services to its subsidiary were “disregarded” as intra-VAT group, the share sale was outside the scope of VAT and that the fees were directly and immediately linked to the overall business. The SC dismissed HLT’s appeal. (Contact: Andrew Clarke)

WM Morrison Supermarkets Limited: VAT treatment of rotisserie chickens – FTT

WM Morrison Supermarkets Limited considered that sales of its cool-down rotisserie chickens (CDRCs) were zero-rated for VAT purposes, and appealed HMRC’s assessments for VAT at the standard rate. Morrisons argued that the supply of CDRCs was zero-rated as the supply of food, and not excluded from zero-rating as a supply in the course of catering, as although the CDRCs were above ambient temperature at the time of supply, and therefore ‘hot’, they did not fall foul of any of the five ‘hot food’ tests in Note (3B) of Group 1 of Schedule 8 to VATA. It also argued that, following stores visits and the supply of detailed information when CDRCs were introduced, HMRC were content that zero-rating was correct, and that had given rise to a legitimate expectation that Morrisons could rely on. The First-tier Tribunal has held that CDRCs are standard rated due to the role of the bags in which the CDRCs were packaged. The FTT concluded that the effect of bags, which had a plastic lining designed to prevent leakage, was that the CRDCs had “been kept hot after being heated” and were “provided … in packaging that retains heat, (whether or not the packaging was primarily designed for that purpose)” or that the bags were “specifically designed for hot food”, meaning that they failed two of the five hot food tests. The FTT went on to consider Morrisons’ legitimate expectation argument, while acknowledging that determining the extent of its jurisdiction was a “vexed and difficult” question given previous conflicting case law. The FTT considered that “HMRC did not give clear and unambiguous rulings … that CDRCs were zero-rated, which Morrisons had a legitimate expectation it could rely on”. The FTT dismissed Morrisons’ appeal. (Contact: Glen Harling)

RCB 9 (2025): VAT liability of the supply of temporary medical staff

HMRC have published Revenue and Customs Brief 9 (2025) on the VAT liability of the supply of temporary medical staff. In Isle of Wight NHS Trust, the First-tier Tribunal 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). The RCB states that HMRC are not appealing this decision. HMRC are reviewing their policy in this area, and “will publish updated guidance in due course”. The RCB states that suppliers of locum doctors may be able to claim a refund of overpaid VAT, and sets out the process for the making of claims. (Contact: Chris Cherrill)

EU: Customs duty to be levied on low value parcels

The EU’s Economic and Financial Affairs Council (ECOFIN) agreed, at its meeting on 13 November 2025, to abolish the rule that customs duties do not apply to low value goods (less than €150) entering the EU. The stated intention was that customs duties would apply to all goods entering the EU when the EU customs data hub becomes operational, which is expected to be in 2028. ECOFIN committed to work towards a temporary solution to levy customs duties on low value imports. At its meeting on 12 December 2025, ECOFIN announced that a fixed customs duty of €3 will apply to goods valued at less than €150 entering the EU, from 1 July 2026. “The €3 duty will be applied to each different type of item, according to their tariff headings, contained in a consignment.” (Contact: Sam Kiely)

This is the last edition of Weekly VAT News for 2025 – we will be back in January.
We wish our readers a very Merry Christmas, and a Happy New Year.