Key VAT updates for May 2026

This month’s update highlights a number of important VAT developments across the education, energy and environmental sectors, alongside relevant and recently published guidance from HMRC. Our regular ‘Is it food?’ feature deviates slightly, into the world of hampers!

A note from Nick Hart, VAT Partner

May’s update brings together several noteworthy court decisions and developments which reinforce how fundamental VAT principles continue to be tested across a range of sectors.

Most notable has been HMRC’s responses to the decisions in Charge My Street and Colchester Institute, as well as the long-awaited guidance on ecosystem services, and more specifically Biodiversity Net Gain (BNG).

We’ve also seen an interesting hamper case, in which the customer’s perception of what they were purchasing was an important element when determining the VAT outcome. This includes a significant First-tier Tribunal decision, which underlines the need to assess whether an element of a supply is ancillary based on the perspective of the typical customer.

As always, we set out below what these developments mean in practice and the areas where businesses may wish to review their current VAT treatment.

HMRC to appeal receive EV charging decision

HMRC has confirmed that it will appeal against the FTT decision in Charge My Street Ltd v HMRC, which we covered in our March 2026 VAT update. The FTT held that supplies of electricity for EV charging at public charge points can be supplies deemed to be for domestic use, meaning they may qualify for the 5% reduced rate rather than the standard rate.

HMRC’s view is that a supply of electricity at public EV charging points is subject to the standard rate of VAT regardless of circumstance. The outcome of the appeal will be significant for operators in the EV charging sector who should review their position immediately.

Operators in this context include any business which operates a public EV charging point on their site, regardless of scale or number of charging points.

HMRC has confirmed its intention in Revenue and Customs Brief 4.

VAT and further education institutions

HMRC has published Revenue and Customs Brief 3 (2026): VAT treatment of certain public funds received by further education institutions in response to the Court of Appeal decision in HMRC v Colchester Institute Corporation, which we covered in our April 2026 VAT update. The Court upheld the Upper Tribunal’s (UT) finding that funding received by a further education institution can represent third‑party consideration paid by funding agencies for the supply of education to students, rather than a grant outside the scope of VAT.

In its Brief, HMRC confirms that it will not appeal the decision and will consider the judgement further in consultation with stakeholders, with any policy change to be announced in a future Revenue and Customs Brief. HMRC also clarifies the position arising from Revenue and Customs Brief 08/21: institutions that adopted the third‑party consideration treatment following the UT decision should continue to apply that approach, while institutions that did not adopt it will only be affected by any change prospectively, from a future date yet to be announced.

HMRC guidance on Biodiversity Net Gain (BNG)

Our recent website article outlines new HMRC guidance on the tax treatment of ecosystem service payments, a long‑awaited development for landowners, developers and advisers.

The guidance sets out HMRC’s core tax principles for arrangements relating to Biodiversity Net Gain (BNG), nutrient neutrality and the Woodland and Peatland Carbon Codes, with impacts across a wide range of taxes. From a VAT perspective the guidance confirms sales of BNG units by taxable persons are subject to VAT at the standard rate, whereas statutory biodiversity credits sold by the government are outside the scope.

Comments

As HMRC has not previously commented on the specific VAT treatment of sales of BNG units, this guidance provides helpful clarification that HMRC’s view is in line with the one taken by the sector, particularly following general guidance provided in September 2024 with respect to ecosystem services.

Unfortunately, the new guidance does not go far enough in our view, as it is silent on the entitlement to reclaim VAT on land management costs (which will still be being incurred many years after BNG units have been sold), and the place of supply of ecosystem services. Uncertainty therefore remains for many landowners and parties undertaking the land management obligations having previously sold BNG. As the sector becomes more and more complex in terms of delivery models, taking early advice is highly recommended.

Is it food?

Not food itself this month, but rather the focus of a recent case was the hampers in which food and drink items were sold.

Case: HMRC v Clearwater Hampers Ltd [2026] UKFTT 567 (TC)

Summary

In Clearwater Hampers Ltd v HMRC, the First‑tier Tribunal (FTT) considered whether lidded wicker baskets used to package food and drink gift hampers constituted a separate standard‑rated supply, or were ancillary to the supplies of food and drink for VAT purposes.

Clearwater Hampers sold curated food and drink collections presented in various types of containers, including cardboard boxes, trays, open wicker baskets and lidded wicker baskets. HMRC had accepted that the containers used for lower‑priced products were ancillary to the food and drink, but refused a repayment claim relating to products presented in lidded wicker baskets, arguing that these were separate supplies.

Applying the principles established in Card Protection Plan, the Tribunal disagreed and allowed the appeal. It found that, from the perspective of the average purchaser, the lidded basket was not an aim in itself but a means of presenting and protecting the food and drink in a manner commensurate with the value of the gift. As such, the basket was therefore ancillary to the food and drink supplies and shared their VAT treatment. This remained the case even though the hampers contained a mix of zero‑rated and standard‑rated items, with the ancillary packaging apportioned accordingly.

The tribunal rejected HMRC’s reliance on VAT Notice 701/14 (Food products) and VAT Notice 700 (VAT guide), confirming that HMRC guidance does not have the force of law and must reflect established legal principles.

Key takeaway

The decision is a helpful reminder that whether packaging constitutes a separate supply for VAT purposes is highly fact‑sensitive and must be assessed by reference to present facts and circumstances which include the customer’s perception of what it is they are purchasing.

Reader Q&A

“Do we need to correct VAT previously accounted for on our supplies (eg where we treated charging as standard-rated service vs zero/reduced-rated electricity), and if so, how far back and by what mechanism (error correction vs voluntary disclosure)?”

Nick Hart, VAT Partner:

Given HMRC is appealing Charge My Street, there is some risk in applying 5% VAT following the FTT’s decision. Should HMRC’s appeal be successful, operators which have adopted that approach would be faced with a significant VAT position to correct. To discuss options and how to achieve the best outcome in the circumstances, please get in touch with our expert VAT team, to discuss your specific circumstances.

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How Saffery can help

Thank you for reading this month’s update. We share these insights each month to help you stay ahead of developments that could shape your compliance, planning and day‑to‑day business operations.

If you’d like support with any aspect of your VAT position, or want Nick and the team to answer your question in the next edition, simply use the submission form or get in touch to arrange a short advisory conversation.