V@ update - February 2025

Welcome to the February 2025 edition of RPC's V@, our monthly update which provides news and analysis from the VAT world.

News

• A hearing date has been set in the Independent Schools Council's (ISC) legal action against the government's decision to levy VAT on independent school fees. Following the High Court's decision to fast-track the hearing, the case is expected to be heard between 1 and 3 April 2025. 
  
  The ISC's press release can be viewed here.
  
  
• HMRC and the Department for Business and Trade have opened a consultation on electronic invoicing which it is hoped will improve productivity, cashflow, simplify tax reporting and reduce the 'tax gap'. 
  
  HMRC's guidance can be viewed here.
  
  
• HMRC has published updated Guidance on applying for simplified import VAT accounting to lower the financial guarantees given for the duty deferment scheme.
  
  HMRC's guidance can be viewed here.

Case reports 

Yorkshire Agricultural Society v HMRC [2025] UKUT 00004 (TCC)

In this case the Upper Tribunal (UT) examined whether the Great Yorkshire Show was exempt from VAT as a fundraising event under Schedule 9, Group 12, Item 1, Value Added Tax Act 1994 (VATA).

The Yorkshire Agricultural Society (the Society), a registered charity, organises and runs the Great Yorkshire Show (an annual agricultural show). The Society claimed VAT exemption on admission fees in respect of the 2016 and 2017 shows, arguing they qualified as fundraising events. HMRC disagreed and refused the claim for a VAT refund for those years. The Society appealed to the First-tier Tribunal (FTT).

The FTT allowed the appeal and HMRC appealed the 2016 repayment claim to the UT.

The UT dismissed HMRC's appeal. The FTT focused on three key conditions in Item 1:

1. Organised for charitable purposes: It was not disputed that the show was organised by a charity for charitable purposes.
   
   
2. Primary purpose of raising money: The UT agreed with the FTT that fundraising was an essential, intertwined purpose of the event, together with education.
   
   
3. Promoted as being primarily for fundraising: The UT ruled that this condition was an incorrect transposition of EU law and should be read as requiring only that the event was promoted for fundraising, which the show was.

Why it matters:

Charities should ensure that when they have an event which potentially falls within the exemption for fund raising, they carefully follow HMRC’s guidance by, for example, making clear the fundraising nature of the event in their literature.

The decision can be viewed here.

Roscoe Noonan v HMRC [2025] UKFTT 00067 (TC)

In this case the FTT considered whether HMRC’s "best judgment" VAT assessment on a second-hand car dealer was too high because it failed to take into account all relevant circumstances.

Mr Roscoe Noonan was a sole trader dealing in second-hand cars. Following a voluntary disclosure to HMRC under Code of Practice 9, it was revealed that Mr Noonan had underreported the takings of his business and he had never registered for VAT, despite exceeding the mandatory VAT registration threshold in April 2008.

HMRC compulsorily registered Mr Noonan for VAT with effect from April 2008 and issued a VAT "best judgment" assessment under section 73, VATA, for under-declared VAT in the sum of £600,832.46.

The methodology HMRC used to estimate the VAT liability was to take figures from West Oxfordshire Motor Auctions (WOMA), which showed how much Mr Noonan had purchased the relevant vehicles for, and apply an average mark-up on his sales of 83.49%.

Mr Noonan did not challenge the methodology itself, but relied on the following three arguments for why the VAT liability assessed should be reduced:

1. It was claimed that around 60% of the purchases attributed to him were actually made by two other people who he permitted to use his account but he was unable to provide evidence of this because he had lost contact with those individuals and all records were destroyed in a flood.

    

2. HMRC had estimated that a further 25% of his sales were not captured by the WOMA data because the vehicle was received from a customer in a part exchange transaction. HMRC increased the estimated sales accordingly, but Mr Noonan argued that only 5% of his sales came from part exchange transactions.

    

3. Sole traders dealing in second-hand goods often make use of the VAT margin scheme, which permits traders to only pay VAT on the difference between the price they paid for an item and the price they sold it for, rather than the full sale price. Mr Noonan argued that he should be able to make use of this scheme which would reduce his liability accordingly.

The FTT accepted Mr Noonan's second argument and found that HMRC should recalculate the assessment on the basis that 5%, rather than 25%, of Mr Noonan's sales involved the receipt of a part-exchange vehicle. The FTT dismissed Mr Noonan's other arguments.

The FTT found that HMRC had exercised its best judgment in estimating the VAT liability and was right to use a mark-up of 83.49%. The FTT did not accept Mr Noonan's argument that two other people used his account  because no evidence was provided in support of this argument. Finally, the FTT found that Mr Noonan could not benefit from the margin scheme because he had not complied with the strict record-keeping requirements of the scheme.

Why it matters:

The key takeaway from this decision is the importance of maintaining accurate sales and VAT records, particularly when seeking to use the VAT margin scheme. It is also a reminder that the FTT is reluctant to overturn HMRC "best judgment" assessments in the absence of clear and credible evidence.

The decision can be viewed here.

Sarabande v HMRC [2025] UKFTT 93 (TC)

In this case the FTT considered whether Sarabande Foundation (SF), a registered charity, was entitled to recover VAT input tax on the acquisition and refurbishment of a property it acquired, Kingsland Wharf.

SF was established by the late fashion designer Lee Alexander McQueen. It acquired Kingsland Wharf, a property in Hackney, which was later converted into art studios, exhibition spaces, and meeting rooms. SF sought to reclaim VAT input tax of £341,487.31 for expenses incurred from 21 February 2014 to 30 June 2018, submitting its first VAT return in August 2018.

HMRC rejected the claim in May 2021, on the basis that SF had made exempt supplies of land to its wholly owned subsidiary, Suture Inc Ltd (SIL), which would not entitle SF to reclaim VAT. SF appealed HMRC's decision to the FTT, maintaining that no supply of land was made and that the VAT incurred related to taxable business activities.

The FTT examined the relationship between SF and SIL, in particular, it considered whether SF had made exempt land supplies to its subsidiary. HMRC contended that SIL occupied part of the property and should be considered a tenant or licensee, which would trigger VAT-exempt supplies and prevent the recovery of input tax.

The FTT concluded that there was no written contract, formal lease, or conclusive evidence of a supply of land between SF and SIL. Instead, SIL’s presence at the premises was informal, without rent or documented agreement governing its right to occupation. The FTT found that without a clear supply of land, HMRC’s basis for denying the input tax claim was unfounded as the supply did not exist and ruled in favour of SF, allowing full recovery of the disputed input tax.

Why it matters:

This case highlights the importance of all arrangements/agreements being recorded in formal documents. Organisations should ensure that arrangements are properly documented in order to avoid protracted disputes with HMRC.

The decision can be viewed here.