VAT Update – February 2026

Since 19 January 2026, HMRC has introduced a new measure aimed at tackling VAT fraud by requiring the VAT registration application reference number to be included when enrolling for VAT services on an online business tax account. This reference number is ordinarily provided on screen and by email following submission of an online application through HMRC’s VAT registration service. If an application was made by paper, the reference number should appear on any written correspondence received from HMRC confirming the VAT registration. The reference number will start with ’0990’.

This step follows an increase in fraudsters attempting to link newly issued VAT numbers to fraudulent Government Gateway accounts before the legitimate business has enrolled in the service.

Comments

The introduction of this step by HMRC is a welcome one as it provides an additional level of security for newly VAT registered businesses. We are aware of cases where clients are unable to register for online VAT services or access their business tax accounts due to fraudsters having already opened an account under the VAT number, which can cause significant and untimely delays to day-to-day VAT processes and procedures. Getting the issue resolved with HMRC can also be a time-consuming affair.

If you have any queries on this measure, or where you can obtain the VAT registration reference number, please contact a member of our VAT team for assistance.

The recent First-tier Tribunal decision in Yourway Transport Limited v HMRC [2026] UKFTT 94 (TC) provides helpful clarification on the recovery of import VAT by logistics businesses that do not own the goods they handle.

Yourway Transport Limited (‘YTL’), a specialist distributor of medicinal products for predominantly US-based biopharmaceutical businesses (‘the Clients’), received clinical trial into its UK depot, stored them under regulated conditions, and dispatched them free of charge to clinics and hospitals, largely in EU Member States. YTL acted as importer of record when the products were shipped to the UK and never took ownership of them – they remained the property of the Clients until final delivery.

HMRC denied YTL’s claim to recover approximately £4.33 million of import VAT between September 2019 and September 2020. HMRC argued that import VAT incurred with respect to imported goods not owned by YTL, and not used by YTL as part of the taxable supplies it was making, was irrecoverable as input tax.

The FTT considered whether the import VAT met the definition of input tax under section 24 of the Value Added Tax Act 1994 (‘VATA’), whether it was attributable to taxable supplies under section 26, and crucially, whether the deeming provision in section 47(1) was applicable. Section 47(1) provides for where an agent acts in its own name, it is treated as making the supply itself.

The FTT found that YTL was acting as agent in its own name when distributing clinical trial drugs to EU clinics, in line with Section 47(1). In addition, paragraph 6 of Schedule 4 VATA treats the removal of goods to EU Member States, in the relevant pre-Brexit period, as a taxable supply, even where no consideration is charged. Taken together, these provisions meant that, for EU-destined consignments, YTL was considered to have used the products for a purpose which entitled it to VAT recovery on associated costs. The import VAT had a direct and immediate link to that taxable purposes and was recoverable as a result.

However, the position differed for consignments destined to remain in the UK or to be shipped to destinations outside the EU. In those cases, neither Schedule 4 nor section 47(1) operated to create a deemed taxable supply of the goods. YTL’s only taxable supplies were its logistics services, and the Tribunal found no sufficient link between those services and the import VAT incurred. Recovery was therefore denied for UK and non-EU consignments.

The Tribunal also rejected an argument based on legitimate expectation, concluding that HMRC had made no clear and unambiguous representation that would justify recovery.

Comments

Two elements of this case enabled YTL to be entitled to recover import VAT with respect to the import of goods it did not own. Firstly, the agent provisions within VAT legislation mean that where a party is acting as an agent in its own name, it is treated as the principal to the supply of goods, for VAT purposes (even though it does not hold legal title to the goods in question). Secondly, the movement of goods from the UK to the EU (pre-Brexit) without a supply taking place is a deemed supply for VAT purposes, and this case a deemed taxable supply. The import VAT paid by YTL was found to be attributable to that deemed taxable supply, and therefore recoverable for YTL.

The EU point here is no-longer applicable unless goods are being shipped from Northern Ireland. That being said, the decision is still interesting because it does highlight that if a party is acting as an undisclosed agent (in its own name and not in the name of the owner of the goods), it can still be entitled to reclaim import VAT, where that VAT is directly attributable to a taxable activity. If a business is applying that position, it is important the commercial and contractual arrangements, support this consistently.

If you’re reclaiming import VAT with respect to goods you do not hold legal title to, please get in touch to ensure your basis for VAT recovery is sound and without risk. Our VAT Partner, Nick Hart, would be happy to discuss this with you.

In a recent decision, Mark Glenn Ltd v HMRC [2024] UKFTT 715 (TC), the Upper Tribunal (UT) allowed the taxpayer’s appeal against assessments of £165,000 for under-declared output VAT. HMRC had issued these assessments on the basis that the supplies of custom-made hairpieces made by Mark Glenn Limited (‘MGL’) were standard rated for VAT.

MGL supplied a bespoke hair replacement system to women (known as the Kinsey system) to treat female hair loss. The Kinsey system involves placing a custom-made hairpiece over the area of hair loss, with individual fibres incorporated into the mesh to address the specific pattern of hair loss suffered by each client. MGL treated these supplies as zero rated for VAT as they considered that these supplies fall under Item 3, Group 12, Schedule 8 of the VAT Act 1994.

Under Item 3, Group 12, Schedule 8 of the VAT Act 1994, the zero rating for VAT applies to the ‘supply to a disabled person of services of adapting goods to suit his condition’. A disabled person is defined in the legislation as ‘any person who is chronically sick or disabled’.

The First-tier Tribunal (FTT) previously dismissed MGL’s appeal, as they found that significant hair loss or baldness in women was not, in itself, a disability and therefore did not constitute an impairment or a chronic illness. The FTT also held that that the supplies made by MGL were not considered services of adapting goods.

Following from the FTT’s decision, MGL appealed to the UT on the grounds that the FTT failed to explain their reasoning for why they considered that baldness in women was not a physical or mental impairment and why the application of the custom-made wigs using the Kinsey system did not constitute a service of adapting goods to suit the individual’s condition.

The UT dismissed the FTT’s reasoning, and they concluded that severe hair loss in women can constitute a disability as it impairs their ability to undertake everyday activities due to cultural and societal expectations. The UT also held that the process of fitting and maintaining the hairpiece using the Kinsey system was one of adapting it to suit the condition of the individual.

On this basis, the UT concluded that supplies of custom-made wigs using the Kinsey system fall within the zero-rating provisions under Item 3, Group 12, Schedule 8 of the VAT Act 1994.

Comments

Following the UT’s findings, the FTT’s decision was overturned and MGL’s appeal against HMRC’s assessments for under‑declared output VAT of £165,000 was allowed.

This case helps to clarify the scope of what may be considered a disability for VAT purposes, as the UT recognised the social and psychological impact of hair loss in women. Suppliers of hair replacement systems should review their VAT position, as the UT’s ruling may provide grounds to zero rate certain supplies going forward, and retrospective claims for over-paid VAT may be possible.

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