Key VAT updates for November 2026

Our monthly VAT Update highlights electronic invoicing and why business should now begin planning for its implementation, the Frasers Group case which concerns attribution of VAT incurred, and another case regarding the VAT treatment of collagen drinks.

A note from Nick Hart, VAT Partner

The recent Budget introduced a number of VAT measures, all of which are significant to those specifically impacted. No headline grabbing changes particularly, although the extension of the zero rate to the sale of the development land to registered social housing providers is worthy of particular mention given the sector has been lobbying for change for a number of years, with our own Sean McGinness, VAT Partner and Head of National Tax at Saffery, being heavily involved. As with all the VAT measures announced in the Budget, we await the detail with interest.

For a quick recap, you can view our Budget commentary which covers the key announcements. You can also catch up on our Budget webinar with Adam Kay.

Perhaps the most significant element was the published roadmap for electronic invoicing implementation, together with a new consultation on digital reporting. Business should not sleep on what is on the horizon and we comment further in this update on next steps for businesses and how Saffery is actively supporting clients on this.

One thing I found particularly interesting from the Budget was the announced removal of VAT exemption for the provision of medical deputies. A significant change for the sector following the positive outcome of the Isle of Wight NHS Trust v HMRC case. This is another example of where HMRC receives what they consider to be an unfavourable result in the courts on a particular VAT position and then seek to change legislation to ensure their view of the appropriate VAT treatment of a transaction gets codified into law. A tactic they appear to be using more frequently.

The roadmap to e-invoicing implementation

HMRC’s e-invoicing roadmap has been published, setting out a clearer path towards mandatory VAT e-invoicing from 1 April 2029. The roadmap provides useful certainty for organisations to start bringing together stakeholders and aligning their finance, tax and technology roadmaps ahead of implementation. Technical details are still to be announced but Saffery is encouraging its clients to begin considering processes, documentation and data to allow enough time to embed any business transformation needed.

E-invoicing will apply for taxable supplies between VAT registered entities/persons when a VAT invoice is required. The rules governing when VAT invoices must be issued will remain unchanged. Although April 2029 may feel some way off, businesses should not underestimate the lead time that may be required. E-invoicing is not simply about replacing a PDF invoice with a different format: it involves the structured exchange of invoice data between finance systems and will touch accounts payable and receivable processes, ERP configuration, master data, procurement, customer and supplier onboarding, tax controls and wider systems architecture.

For organisations with multiple systems, entities or international operations, understanding your current finance landscape and identifying gaps early is advisable to incorporate the UK requirements into existing technology and transformation programmes, rather than having to make potentially costly changes close to the deadline.

SMEs should not assume that e-invoicing is an issue only for larger businesses. The requirement will apply to all VAT-registered businesses from April 2029, and whilst the expectation is that most businesses will be able to access e-invoicing functionality through their existing accounting software, there is still a need to review the quality and robustness of current processes and data.

The message for SMEs is therefore not to spend on technology infrastructure yet, but also not to sleep on the change either. Starting early means understanding how invoices are currently raised and received, speaking to existing software providers about their e-invoicing roadmap, and making e-invoicing capability a consideration when replacing or upgrading finance software. That should help avoid rushed decisions later and put businesses in a better position to benefit from greater automation, fewer errors and potentially faster payment as well as achieving compliance.

Saffery is helping businesses use the period ahead to prepare in the appropriate way, leveraging tangible practice and in-house experience of VAT and e-invoicing. This includes assessing current invoicing processes and VAT data, identifying systems and stakeholders likely to be affected, undertaking an e-invoicing readiness or gap assessment, and helping businesses build the requirements into planned ERP, finance or procurement transformation. The aim should be not simply to achieve compliance by April 2029, but to use the change as an opportunity to improve the quality, control and efficiency of invoicing processes more broadly.

Alongside this, HMRC announced a consultation on the future use of structured e-invoice data is the first official move towards HMRC using the data you share via e-invoicing and is the pre-cursor to pre-filled tax (VAT) returns. We will be responding to this consultation, and welcome thoughts on this from businesses so they can be represented in our responses;

Please get in touch with Nick Hart, VAT Partner or Robert John, Tax Technology Director to discuss these matters further. 

Away from budget announcements now as we comment on some recent cases. 

The decision in Frasers Group Financial Services Limited v HMRC [2026] UKFTT 1496 (TC) provides an important reminder that the VAT treatment of marketing expenditure depends on its objective use in the business, rather than simply how the expenditure is described or commissioned. During the relevant periods, the business, then trading as ‘Studio’, sold taxable goods through catalogues and online while also making VAT exempt supplies of credit. The Tribunal found that the product photography and modelling costs were used for both activities: credit messaging was displayed prominently alongside the products, photographs were overlaid with Studio Pay information and the same imagery was used in credit leaflets. The costs were therefore residual rather than directly attributable solely to taxable retail sales, meaning the associated input VAT had to be apportioned.

On that apportionment point the FTT rejected the appeal against HMRC’s denial of proposed partial exemption special method, citing a number of reasons why the standard method did give a fair and reasonable VAT recovery result. 

Comments

An interesting case which has consistencies with an earlier judgement on a similar but not identical fact-pattern – that of Littlewoods. Littlewoods Limited v HMRC [2025] UKFTT 1602 (TC). In that case though the FTT concluded that marketing costs were wholly attributable to the taxable sale of products. In that case photographs informed customers about the products and did not promote the associated VAT exempt finance or insurance services. Although finance facilitated some purchases, the connection between the photography and the exempt supplies was indirect at best in the courts’ view.

Frasers Group should also be read alongside the Court of Appeal judgement in Royal Opera House Covent Garden Foundation v HMRC [2021] EWCA Civ 910. There, the Court of Appeal rejected the argument that production costs were directly and immediately linked to taxable catering sales merely because the productions attracted the customers who subsequently bought food and drink. Commercial interdependence, economic necessity or a “but for” connection was insufficient: the link between the production costs and catering remained indirect, while the immediate connection was to the staged performances and the associated ticket supplies.

The view taken in Frasers Group was that the photographs themselves were actually used in communications promoting credit, not simply that credit helped to generate sales or made the overall business model more profitable. Conversely, Littlewoods demonstrates that where the exempt activity merely facilitates the taxable sale and the relevant marketing material does not itself promote that activity, the economic relationship between the two revenue streams may be too remote to alter direct attribution.

Attribution of costs for VAT recovery purposes can be a complex matter and is one the VAT team at Saffery advises on regularly. Please contact Nick Hart, VAT Partner for further details. 

Is it food?

Last month we commented on the Minerva collagen-based drinks case. Collagen drinks have been back in court again, this time at the Upper Tribunal.

In Bottled Science Ltd v HMRC [2026] UKUT 429 (TCC), the Upper Tribunal allowed Bottled Science’s appeal concerning the VAT treatment of ‘Skinade’, a liquid collagen product, holding that the FTT had approached the statutory test in the wrong order. In light of Innovative Bites, the UT held that the key preliminary question is whether Skinade is a “drink”: if it is, Note 1 to Group 1, Schedule 8 VATA 1994 provides that “food includes drink”, so there is no separate requirement to establish through a wider multifactorial test that it is food. The UT did not itself decide that Skinade was zero-rated, instead remitting the case to a differently constituted FTT to determine whether it is a drink. It rejected Bottled Science’s other grounds concerning the FTT’s reliance on marketing and its assessment of nutritional purpose.

Reader Q&A

Following the announcement in the Budget that online marketplaces will become liable for VAT on the sales made by UK businesses from the platform, we received the following question from a concerned reader.

“I already run a VAT-registered business and sell through Amazon and other online marketplaces. If I’m already correctly accounting for VAT, will the new marketplace rules announced in the Budget actually make much difference to me?” 

Nick Hart, VAT Partner:

“Potentially, yes. Although the measure is primarily aimed at improving VAT collection and tackling non-compliance, its impact will extend to perfectly compliant businesses.

From October 2027, the marketplace rather than the UK based seller will become responsible for collecting and accounting for VAT on relevant marketplace sales, so businesses will need to reconsider how those transactions flow through their accounting systems, VAT returns and reconciliations. Perhaps more importantly, there could be a cash-flow impact. Businesses that currently receive the VAT-inclusive proceeds from marketplace sales before later paying the VAT to HMRC may no longer have temporary use of that VAT cash amount. Businesses selling both directly and through platforms will also effectively have two different VAT accounting processes running alongside one another.

My advice would therefore be not to regard October 2027 simply as a compliance deadline: sellers should use the intervening period to map their marketplace income streams, understand how platforms will calculate and deduct VAT, and test whether their ERP/accounting systems can reconcile marketplace settlements correctly. There may also be a wider commercial question around pricing, margins and the economics of selling through a platform versus selling directly, particularly for businesses with significant marketplace turnover.”

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 would like Nick and the team to answer your question in the next edition, please use the submission form or get in touch to arrange a conversation.