VAT Update – June 2025

The VAT position with respect to the provision of education by private schools changed with effect from 1 January 2025. This was a much-publicised reform introduced last year by the newly elected government.

HMRC’s guidance, first published in October 2024, has been updated to now include a section on newly VAT registered schools reclaiming VAT on services purchased before they were registered. HMRC had referred to pre-registration VAT recovery on the purchase of goods in its internal manual, which did not address the position regarding services purchased before registration which relate to the provision of education post-1 January 2025.

HMRC guidance suggests impacted schools can apply an apportionment to VAT bearing services which were purchased within the six-months before registering for VAT, and which relate to supplies of education both before and after 1 January 2025. An example apportionment method is included in the guidance.

Pre-VAT registration VAT should be claimed on the first VAT return due following VAT registration.

Comments

Whilst clarifying guidance from HMRC is always welcome, the latest update to the private schools VAT guidance does raise some important questions, not least that many newly VAT registered private schools will have already submitted their first VAT returns. Consequently, schools may have to revisit the position. Given the timing of the new guidance, we perhaps would not expect HMRC to deny VAT recovery on the basis it was not included in the first VAT return.

The approach suggested regarding apportionment is also not consistent with partial exemption rules under the standard method. If the pre-registration VAT on services is residual VAT for partial exemption purposes, standard pre-registration rules would require the partial exemption position for the first VAT return period to apply and the residual VAT reclaimed on that basis. It is unclear now whether HMRC would have an issue with a newly registered private school taking this approach. Again, we would expect not, but uncertainty remains, and given the challenges private schools have faced since the VAT liability of private education was changed, and continue to face, any doubt about applying a particular position is not ideal.

For further information regarding this, and all other aspects of VAT accounting in the private education sector, please contact Callum Richards, VAT Director.

The Upper Tribunal (UT) upheld the First Tier Tribunal’s (FTT) decision confirming that Walkers’ Sensations Poppadoms are excluded from the zero VAT rate typically applied to food.

Last year, in Walkers Snack Foods Limited v HMRC [2024] TC09024, the FTT dismissed Walkers’ appeal that one of their products, Sensations Poppadoms, falls under the zero-rating of VAT. Walkers argued that its poppadom product was fundamentally different from crisps and other potato-based snacks, but the FTT found that the supplies should be standard rated for VAT purposes due to the fact that the supplies of Sensations Poppadoms fell within excepted item 5 of Group 1 Part II of Schedule 8 to the Value Added Tax Act 1994.

For context, Sensations Poppadoms are ‘mini poppadoms’ which are made by deep-frying a dough pellet. The finished product is then seasoned and packed. There are two flavours of Sensations Poppadoms and they both contain similar amounts of potato granules, potato starch, and modified potato starch. The FTT regarded the potato granules as being within the definition of the term ‘the potato’, rather than ‘a substance derived from potato’ for the purposes of excepted item 5, thus the FTT concluded that Sensations Poppadoms were similar to potato crisps. Furthermore, the FTT decided that the words ‘the potato’ should be read to include potato granules. The FTT concluded that the products were made from ‘the potato’ since they included potato granules in the definition of being made from ‘the potato’. This led to their calculated potato content being 40% (including potato granules and potato starch content). The FTT considered that their appearance and texture is similar to potato crisps.

Walkers had been granted permission to appeal on eight grounds, however, six grounds (1, 2, 4, 5, 6, and 8) were considered by the UT. Grounds 3 and 7 were not pursued by Walkers.

The UT agreed with the FTT that the term ‘the potato’ was wide enough to include potato granules. Consequently, the UT dismissed Ground 1. The UT also agreed with the FTT that the products were made from the ‘the potato’ since they included potato granules in the definition of being made from ‘the potato’, so the UT dismissed the appeal based on Ground 2.

Grounds 4, 5, 6, and 8 related to the multifactorial assessment made by the FTT in determining whether Sensations Poppadoms should be regarded as similar to potato crisps for the purposes of excepted item 5. Whilst the UT expressed some reservations about the FTT’s approach to some aspects of the multifactorial assessment, they found that these conclusions did not materially affect the overall decision and that the FTT had not ‘reached a conclusion which is so unreasonable that no reasonable tribunal… could reach’. As a result, the UT dismissed Walkers’ appeal on Grounds 4, 5, 6, and 8.

Comments

The UTT conclusively dismissed Walkers Snack Foods Limited’s appeal against the FTT’s decision that Sensations Poppadoms are ‘similar to a crisp’ and ‘are made from the potato’. As a result, Walkers Sensations Poppadoms do not qualify for the zero-rating of VAT and will be subject to the standard rate of VAT.

This is an interesting case which turns out to be significant in determining the VAT treatment of the item. This case has significant implications in the wider industry because for food producers and retailers, a small change to ingredients or packaging can affect the VAT treatment of an item.

For further details, please contact Nick Hart, VAT Partner.

In this recent First Tier Tribunal (FTT) case of Turkish Food Supplies Ltd v HMRC [2025] UKFTT 496 (TC), the FTT considered whether Turkish Food Supplies Limited (TFS) had to pay import VAT on payments made to a Turkish supplier for bottled water which was to be imported from Turkey. HMRC considered that TFS had to pay additional import VAT on the import of the bottled water. However, TFS appealed against the demand for payment of import VAT by HMRC.

TFS had made advanced payments (totalling £718,000) to the Turkish supplier and this case was not about the liability of bottled water, but the advance payments and the value of the goods imported.

Article 70 of the Union Customs Codes states that the customs value of goods is the price actually paid or payable for the goods when sold for export. It was not disputed that TFS paid £718,000 to the supplier but HMRC argued this was the value of the bottled water imported. TFS argued that £111,390 was for the bottled water actually imported and the remainder of £606,609 was an advance “hedge” payment to secure a future fixed price. It was not payment for specific goods.

The FTT disagreed with HMRC, concluding the hedge payment could be deducted from the customs value and therefore the advanced payments were not for specific imported goods, thus import VAT of £121,321 was not due on this amount. The FTT accepted that the advanced payments made by TFS were made to secure a better price per unit. This lower price would not have been available otherwise.

Comments

This case highlights the importance of identifying whether import VAT is payable on qualifying items and how much. In this case, the FTT found in favour of the Appellant as the FTT accepted advance payment for unspecified goods to be imported at unspecified times was not subject to import VAT. This case shows how getting the correct valuation can be complex and the importance of keeping sufficient evidence for imported goods, including amounts paid as well as the normal evidence of shipments to support input tax deduction, such as PIVA statement and C79s etc.

If you have any questions regarding import VAT in any context, please contact Nick Hart, VAT Partner, for further details.

Roseline Logistics Ltd (Roseline), originally a transport provider for the events industry, began to provide customs agency services. In early 2022, Roseline submitted 32 import declarations on behalf of QP Trading Limited (QPTL). Roseline submitted the declarations applying postponed import VAT accounting (PIVA), a mechanism that allows UK VAT-registered businesses to account for import VAT on their VAT return, rather than paying it at the time of importation.

Roseline had failed to recognise that QPTL’s VAT registration had been cancelled in October 2021, meaning it was no longer eligible to apply PIVA. The FTT has dismissed Roseline’s appeal and upheld HMRC’s original decision that Roseline was jointly and severally liable for £1,126,249.64 in unpaid import VAT given it had incorrectly assumed that QPTL could account for the import VAT using PIVA.

The FTT concluded that Roseline, in its role as a customs agent, bore responsibility for ensuring that its customer (QPTL) was entitled to account for import VAT using PIVA. As QPTL was not entitled at the time the declarations were made, Roseline was held liable for the resulting unpaid VAT under sections 6(3)(b) and 6(3)(d) of the Taxation (Cross-border Trade) Act 2018. The tribunal also examined whether imposing this liability breached Roseline’s rights under the European Convention on Human Rights and found the relevant statutory provisions to be proportionate and compliant with those rights.

Comments

This case serves as a cautionary reminder for customs agents and intermediaries. It underscores the importance of:

• Verifying the VAT registration status of customers before completing customs declarations on the basis that import VAT will be accounted for using PIVA,
• Ensuring clear and direct authorisation when acting on behalf of third parties, and
• Understanding that liability may arise if there is participation in a breach of customs obligations.

The tribunal’s decision reinforces HMRC’s strict stance on compliance with post-Brexit VAT procedures, and in this instance the end result is that the appellant faces a significant liability of £1.1 million. Should you have any questions regarding the proper use of PIVA we strongly recommend that professional advice is sought to ensure proper procedures are followed.

Please contact Nick Hart, VAT Partner, for further details.

As part of the UK’s commitment to reach net zero by 2050, the UK government has been considering ways to incentivise businesses to decarbonise by imposing a cost on carbon emissions.

Following a number of technical consultations, the government recently published the draft primary legislation for the introduction of a UK Carbon Border Adjustment Mechanism (CBAM). CBAM will place a tax on the imports of certain emission intensive goods into any part of the UK from countries with a lower or no carbon price. Emission intensive goods within the scope of CBAM (referred to as ‘CBAM goods’) will include:

CBAM will only apply to ‘CBAM goods’ which are imported in the course of business and any goods imported for non-business purposes will be outside of scope

HMRC will set a CBAM rate for each CBAM sector based on the effective carbon price in the UK, which is the price paid by the producers after accounting for the impact of free allowances and other reductions. The aim is to ensure that imported goods are subject to a carbon price comparable to that incurred by UK production.

The ‘liable person’ for CBAM will be the importer of the goods into the UK and must register with HMRC for CBAM if either the aggregate value of CBAM goods in the previous 12 months was £50,000 or more, or it’s expected to be more than £50,000 in the next 30 days.

The first CBAM return will be for the 12 months from 1 January to 31 December 2027 and penalties will apply for compliance errors. We would therefore recommend that affected businesses consider the impact of the additional reporting requirements, and the cost of charges levied on them under CBAM and begin to plan accordingly ahead of implementation.

Please find further detail in respect of CBAM and what to expect, in our more detailed CBAM article.

Comments

The published draft legislation is helpful in enabling business to start planning for the implementation of CBAM in the UK. Saffery is supporting business that will be affected by CBAM by:

• Reviewing the goods currently being imported by reference to the commodity codes within scope of CBAM,
• Assessing the potential CBAM liability and registration requirements,
• Assisting with developing internal processes and systems readiness for the implementation of CBAM, and
• Providing real time insights from relevant government departments.

If you have any questions or would like to discuss how CBAM may affect your business, please contact Nick Hart, VAT Partner.