Weekly VAT News

JD Wetherspoon Plc: Application of the temporary VAT reduced rate to cider during COVID – FTT

In order to support the hospitality industry during COVID the Value Added Tax (Reduced Rate) (Hospitality and Tourism) (Coronavirus) Order 2020 (the Order) introduced a reduced rate of VAT for certain restaurant and catering services (as enacted in Grp. 14, Sch. 7A, VATA 1994). The Order specifically excluded ‘alcoholic beverages’, which were defined as beverages which were subject to excise duty as spirits, beer, wine or made-wine, but the definition did not expressly refer to cider. In May 2022 JD Wetherspoon submitted a claim for overdeclared output tax on supplies of cider during the relevant period (15 July 2020 to 31 March 2022) which it subsequently contended were eligible for the reduced rate. HMRC rejected the claim on the basis that having regard to the purpose and context of the Order, it should be interpreted as including cider. In a lengthy 72-page decision, the First-tier Tribunal has rejected the taxpayer’s appeal. The FTT held that the language used in the definition of ‘alcoholic beverages’ could not be construed as to include cider. However, the FTT held that authorities had demonstrated that the courts have the power to correct obvious drafting errors in legislation in certain narrowly-defined circumstances (the Inco principle). As such, the definition of ‘alcoholic beverages’ should be treated as including cider, as well as the other alcoholic beverages specifically referenced. The taxpayer’s appeal was therefore dismissed. The FTT also held that the UK legislation must be compatible with the principles of EU law (including fiscal neutrality) and that a conforming interpretation is required, and that entails the addition of a reference to ‘cider’ in the definition of ‘alcoholic beverages’. (Contact: Kendra Hann) 

RCB 2 (2025): The use of VAT grouping within the care industry

HMRC have published RCB 2 (2025) about the treatment of state-regulated care providers that form a VAT group with non-state-regulated providers of welfare services. These VAT group structures incorporate an entity which is not state-regulated (i.e., not-registered with the Care Quality Commission, or the equivalent body) into the supply chain for the provision of welfare services to non-privately funded individuals, with a subcontract arrangement in place with a state-regulated care provider in the VAT group. This structure results in the welfare services being taxable, thereby enabling VAT recovery on costs that relate to supplies of welfare services that would otherwise be exempt from VAT. The RCB explains that HMRC consider this to be a form of tax avoidance and will, where necessary, refuse new VAT group registration applications that are designed to implement and facilitate these VAT grouping structures. Simultaneously, HMRC are launching a programme to review and investigate all instances where it is known or suspected that an avoidance scheme is in operation within a VAT group arrangement, and where necessary, will remove the relevant parties from VAT groups. (Contact: Chris Cherrill)

Review of the customs treatment of Low Value Imports

In a government press release published on 23 April 2025, it has been announced that there will be a review of the customs treatment of Low Value Imports. Under the existing regime, goods valued at £135 or less can be imported without paying customs duty, and some of the UK’s best-known retailers argue this disadvantages them with overseas competitors. The press release, which also details other measures to support free trade, explains that officials will engage stakeholders from next month to consider the impact on UK consumers, minimising administrative costs and other factors. (Contact: Sam Kiely)

Carbon Border Adjustment Mechanism: Draft legislation – Consultation

The Carbon Border Adjustment Mechanism (CBAM) will place a carbon price on specified goods imported to the UK from sectors that are at risk of carbon leakage. It takes effect from 1 January 2027. HMRC have published a technical consultation which aims to gather feedback from stakeholders on the drafting of the primary legislation to make sure it delivers the policy correctly and effectively. The UK CBAM seeks to ensure that UK decarbonisation efforts lead to a true reduction in global emissions rather than simply displacing carbon emissions overseas. The draft legislation sets out the scope of the tax and the calculation for CBAM liability, alongside the core administrative elements of the tax. It is not a further consultation on the policy design. Alongside the draft legislation, the government has published a policy update that contains further details on key features of the UK CBAM. The consultation closes on 3 July 2025. (Contact: Zoe Hawes)

VAT case calendar

On 1 May, the Court of Appeal will hear the taxpayer’s appeal against the Upper Tribunal’s decision in Impact Contracting Solutions Ltd on mini-umbrella company fraud.

At the CJEU, on 30 April, the judgment will be released in Genzynski, a referral from Poland on joint and several liability of a member of a board of directors.