VAT Update – February 2023

15 Feb 2023

VAT Update

In this issue of VAT Update, we update readers on key news and cases, including:

  • A case into export evidence and the importance of retaining correct and adequate documentation to support a zero-rate VAT position.
  • Proposed VAT reforms for digital good/services in the EU and how this may impact Northern Ireland.
  • A case result looking into the issue of zero-rated VAT and confectionery.
  • VAT registration and letters sent by HM Revenue & Customs (HMRC) requesting further information.

A recent case has highlighted the importance of retaining adequate export evidence to support the zero-rate of VAT being applied to the sale of exported goods.

In Pavan Trading Limited [2023] UKFTT 79 (TC), the First Tier Tribunal (FTT) ruled in favour of the appellant, overturning HMRC’s assessment for VAT on supplies of exported goods which the appellant had zero-rated. HMRC’s view was that the evidence held to support the zero-rate VAT treatment being applied, was insufficient.

Much of the legal framework for export evidence for the purposes of zero-rating supplies of exported goods is contained within VAT Notice 703, sections of which have the force of law. The notice refers to the supplier needing to retain a bundle of documents and information which comprise official, commercial and supplemental evidence, which together demonstrate goods have been exported from the UK and have arrived at their non-UK destination. In this case, the goods supplied had been sent to the US by Royal Mail’s international parcel service and the appellant had completed the necessary US customs paperwork, attached a commercial invoice to each parcel and obtained a certificate of posting from the Post Office.

HMRC had challenged the suitability of the documents presented by the appellant when an officer reviewed the VAT accounting records, citing a number of matters which they were not satisfied with, including:

  • Inadequate evidence of customer payment;
  • the delivery address was not the customers’ principal place of business;
  • Supplier information was incomplete and disagreed with information held by HMRC; and
  • Other matters including the evidence had not been provided to HMRC within three months.

The FTT found HMRC’s position (with respect to most of these elements) to be unfounded and actually not relevant or sufficient for the export evidence not be adequate to support the zero-rate of VAT applied. HMRC’s interpretation of a three-month time limit point, had also been incorrect.

The FTT concluded that the evidence the appellant had retained, with respect to the supplies of exported goods, was sufficient to support the zero-rate VAT treatment.


The biggest VAT risk for suppliers of exported goods is export evidence and the need to retain a bundle of information and documents, many of which are described in VAT Notice 703. HMRC’s starting point when reviewing the correctness of the VAT treatment applied to export sales, is to review the export evidence and ensure the supplier held such evidence within three months of the supply being made. Suppliers are perhaps unlikely to hold every piece of information or documentation listed in VAT Notice 703 as some is specific to certain circumstances, however, supplies are expected to ensure the bundle of evidence they do have is comprehensive.

It is often the case that certain elements of what HMRC would expect to see with respect to official and commercial evidence (as described in the notice) are held by third party freight forwarders or customs agents. The supplier must therefore ensure that these third parties are obtaining the necessary documentation within the required time frames and that the documentation is available for inspection at short notice, should the supplier require it. The third party would also need to be aware that such records would need to be retained for six years as part of the supplier’s VAT record keeping obligations. In these circumstances it is strongly recommended that the agreed contractual terms between the parties cover the retention and availability of documentation which the supplier would need to support the VAT treatment it is applying to export sales.

Supplies of goods under ‘Ex Works’ terms, where the customer is collecting the goods from the supplier and arranging the shipment overseas, can also be problematic in terms of the supplier being provided with the necessary shipping documents by the customer, which the supplier needs as part of the export evidence. In these circumstances it is often the case the supplier would charge VAT and refund this back to the customer on receipt of export evidence. This protects the supplier’s position.

Failure to keep adequate export evidence can result in assessments for under-declared VAT being raised by HMRC, without the opportunity for the VAT to then be charged on to the customer. Penalties and interest may also apply.

If you have any concerns regarding the export evidence you hold with respect to export supplies of goods, and feel a review of those records would be beneficial, please get in touch with Nick Hart, Director of VAT.

Details of the Pavan Trading Limited case:

HMRC’s VAT Notice 703: VAT on goods exported from the UK (VAT Notice 703) – GOV.UK (

HM Treasury has issued an Explanatory Memorandum in response to proposals published by the European Union (EU) to reform certain VAT rules for the digital age. These proposals were published by the EU in December 2022 and whilst they are still just proposals at this stage, the UK government is responding to them largely because of the status of Northern Ireland and the fact for VAT purposes it is still considered part of the EU insofar as many provisions which relate to VAT and the movement of goods are concerned (as well as being still very much part of the UK VAT system of course). Should the proposed the changes be implemented, this would mean amendments to the EU VAT Directive and other supplemental legislation which would impact Northern Ireland. They may also impact UK businesses who are VAT registered in the EU as a result of their overseas business activities.

The overarching theme of the proposed amendments is to tackle VAT fraud and make VAT compliance more effective and efficient, through the use of digital technology.

One of the proposed measures would see online marketplaces become liable to collect VAT on supplies of goods made by EU based merchants selling through their platforms. Currently, the liability for online marketplaces only applies for supplies made by non-EU businesses. The liability on online marketplaces would apply for B2B and B2C transactions. The use of the Import One Stop Shop (IOSS) would also be mandated for online marketplaces.

In addition, the scope of the One-Stop Shop (OSS) mechanism would be extended to include movement of own goods within the EU. The scope of the reverse charge will also be widened so that it becomes mandatory for EU Member States to apply in certain circumstances, removing the optional nature of some of the reverse charge provisions.

Proposed changes to VAT reporting and invoicing will be introduced later in the reform process, and will see standardised digital reporting across Member States, again as a measure to further tackle fraud in the VAT system. This could result in single EU VAT registrations for intra-EU trade purposes.

The Explanatory Memorandum is an acknowledgement that the UK government is monitoring these proposed changes very closely, because of the way they would impact Northern Ireland.


The proposed EU VAT reforms is a significant step, and it will be interesting to see how changes are ultimately implemented. Clearly businesses trading/moving goods between the EU and Northern Ireland will be impacted, although to what extent is still subject to debate at this stage.

UK businesses registered for VAT in an EU Member State will also need to mindful of EU VAT changes as they may be impacted as well, and UK based online marketplaces should prepare for further VAT reporting liabilities being placed on them with respect to EU based merchants selling through their platforms.

The EU VAT system is almost an everchanging landscape and will continue to be the subject of much reform over the coming years, as VAT fraud continues to be a major issue and the complexities of VAT compliance continue to be a burden on businesses trading successfully across the EU.

If you would like to know more about the EU VAT in the digital age proposals, please contact Sean McGinness, Partner and Head of VAT, or Nick Hart, VAT Director.

EU Explanatory Memorandum:

This case was an appeal to the Upper Tier Tribunal (UTT) against the decision of the FTT that Organix and Nakd bars sold by Morrisons were not eligible for zero-rating as food suitable for human consumption. The FTT had agreed with HMRC that the products fell within the exception set out in the legislation for confectionery.

The FTT made detailed findings of fact regarding the bars, with regard to their ingredients and packaging etc, and on the basis of those findings, concluded that the bars were confectionery. The scope of the appeal to the UTT was limited to three points of law:

  • Whether the actual or perceived healthiness of the products had been given enough weight;
  • Whether the FTT had been correct in law by treating the absence of cane sugar, butter and flour from the bars as irrelevant to whether they were confectionery; and
  • Whether the FTT had been correct to find that the products were not ’sweetened’ because they were already inherently sweet.

There was a lengthy discussion in the case on the extent to which the findings of the FTT could be challenged and the extent to which they should be treated as findings of fact.

After a lengthy consideration of the extent to which the FTT had considered the issue of healthiness, the UTT decided that this factor had not been given sufficient weight in their consideration of all the factors to be considered.

The FTT had not agreed with the appellant that the absence of cane sugar, butter and flour from the bars meant that they were less likely to be treated as confectionery. The UTT disagreed with this finding but stated that, as there were a number of factors to be taken into account, this factor did not necessarily determine the appeal.

With regard to the definition of the word ’sweetened’, there was a lengthy consideration of previous caselaw where this had been a key consideration, but the UTT finally concluded that if the word was given its ordinary meaning, it could not include products which were inherently sweet.

The UTT therefore concluded that the FTT had erred in the matters of law under appeal and that the case should be remitted to a differently constituted Tribunal, with directions being issued by the UTT, to carry out a new assessment of the correct VAT liability of the bars under consideration.


The case is an interesting exploration of the relationship with between the two tiers of the Tribunal, and the importance of the findings of fact by the FTT, and also a useful review of the various factors which need to be taken into account when considering the VAT treatment of snack foods etc.

If you have any questions regarding this case, please contact Wendy Andrews, VAT Director.

We are seeing a new development with recent VAT registrations. In some cases, HMRC are threatening to de-register newly registered businesses in 30 days if they do not provide further detailed information about their taxable supplies or their intention to make taxable supplies. In some cases these letters have been sent in advance of any VAT returns being submitted despite asking detailed questions about VAT return filing etc.


The VAT legislation (VATA 1993 sch 1 para 13) says that HMRC cannot cancel a VAT registration unless they are satisfied that the person is not subject to a requirement to be registered. These letters appear to be an attempt to collect that information with the default that the registration will be cancelled in 30 days if the information is not received. Any taxpayers receiving notification of this kind should consider their position and press HMRC to reinstate their registration where appropriate.

For any further information on VAT registration applications, please speak to your usual Saffery contact, or get in touch with either Nick Hart or Wendy Andrews, VAT Directors.

Contact Us

Sean McGinness
Partner, Edinburgh

Key experience

Sean is Head of the Edinburgh office.