VAT Update – January 2024

11 Jan 2024

vat update abstract graphic

In our first VAT Update of the year, we examine the latest news and key cases, including:

  • An important case which raises questions regarding the future of the Tour Operators’ Margin Scheme (TOMS),
  • Changes to the DIY housebuilder VAT scheme which make the VAT claim process more efficient,
  • A notable case concerning a single or multiple supply question,
  • A case that highlights the complexities of VAT and serviced accommodation providers, and
  • New reporting obligations in the UK for digital platforms, as well as in the EU for providers of payment processing services.

Next month we will look at the Labour Party’s proposed change to the VAT treatment of private schools, as well as looking forward to the March Budget.

Following on from the Sonder Europe Limited TC/2020/00890 case discussed in our November 2023 VAT Update, another case has been heard in the First Tier Tax Tribunal (FTT) on the Tour Operators’ Margin Scheme (TOMS) – and it’s another win for the taxpayer.

This case concerned Bolt Services UK Ltd (Bolt) (UKFTT 01043) who operate a mobile ride-hailing service, similar to Uber, where customers use an app to book a private hire vehicle (PHV) for a journey to the airport, shops, work, etc. Bolt buys in the PHV and contracts separately with drivers and customers. The PHV drivers are independent contractors who provide their own vehicle and are free to accept or reject any journeys.

The FTT concluded that Bolt is only required to pay VAT on its margin and not the full amount it receives from customers; it’s a big win for Bolt.

Bolt had contended that its services fell within the TOMS, a scheme for tour operators and travel agents, because they were supplied for the benefit of travellers and of a kind commonly provided by tour operators and travel agents. While HMRC disagreed with this, the FTT found that it was wrong to distinguish between a scheduled journey a traditional tour operator may provide and Bolt’s on-demand rides, and it was only a matter of timing – how far in advance you book the travel would be arbitrary, the purposes of the journey didn’t matter. While a ride-hailing service may not be a service a tour operator provides, it was seen as comparable.

To fall within TOMS, the services purchased and resupplied must also not be materially altered or be an in-house supply. The FTT again dismissed HMRC’s argument that Bolt was providing the platform to its customers and therefore altered the nature of the supply it received from the drivers.


Traditionally, the TOMS was thought of in respect of supplies of transport and accommodation overseas, and it was set up in part to avoid tour operators having to register in other countries. However, this case further demonstrates that it also applies to purely domestic transactions and supplies of just transport, and isn’t just a concern of traditional tour operators.

This could also be good news for Uber, who has a similar case with a reported £386 million of VAT at stake that is expected to be heard later this year. This decision, along with the Sonder defeat for HMRC, is likely to increase speculation that this could lead to a wider review of the TOMS by HMRC, and possibly the end of the scheme in the UK altogether.

Please contact John Butterfield, VAT Director for further details.

The VAT DIY housebuilder scheme provides the opportunity for those building their own homes to reclaim VAT incurred on purchasing building materials. Similarly, those converting non-residential properties into homes for themselves can reclaim the standard rate VAT on building material costs, and the VAT incurred on construction services that are necessary for the conversion, which is typically incurred at the 5% rate.

HMRC has introduced an online service as an alternative to hard copy filings. To coincide with the release of the online claim process, new HMRC guidance has been published. An online claim is submitted through a Government Gateway account, which is straightforward to set up with HMRC if one is not already in place. For claims submitted online, you can expect to receive a claim reference number from HMRC within two weeks by post, along with a request for additional information where applicable. A decision whether or not a claim is successful should be expected within three weeks from the date when all further information requested by HMRC has been submitted.

This also coincides with the recent time limit extension for making such claims. For buildings completed on or after 5 December 2023, claims must be submitted within six months of completion The time limit was previously three months.


HMRC review DIY housebuilder claims with great scrutiny and unless care is taken over the claim, there is a chance HMRC will identify a reason to reject it. It’s important to assess whether you’re eligible to make a claim at the start of the development process, when architects are first engaged and when planning applications are being drafted. There are a number of eligibility conditions to meet regarding who would be entitled to receive a VAT refund, and the circumstances of the specific build project are critical, as well as quite extensive supporting documentation requirements which form part of the claim process. While HMRC guidance on DIY claims is extensive, taking specialist advice as early in the process as possible will greatly improve the chances of a claim being successful.

It should be noted that charities that develop their own property from which non-business activities will be undertaken, also have the opportunity of reclaiming VAT incurred on the building materials or other costs through the same scheme.

If you’re considering building your own home or converting a non-residential property into your home, please get in touch with Nick Hart or John Butterfield, VAT Directors, for further guidance.

The recent case of GAP Group Limited TC/2021/11337 has highlighted the complexities that can arise when determining whether there is a single or multiple supply when more than one element is being supplied. There is an extensive body of case law on the topic and this case provides another helpful example of how the principles derived from previous judgements should be interpreted and applied.

GAP Group Limited (GAP) is a plant hire company providing equipment such as excavators, dumpers and diggers to construction and civil engineering sectors. When delivering this equipment, GAP would provide them with a full tank of red diesel, where applicable. If the equipment was returned to GAP with less than a full tank, GAP would charge the customer for the amount of red diesel required to return the tank to full. It was not necessarily GAP’s intention that this would happen as a matter of course and it marked up the charge to the extent that it would be cheaper for the customer to refill the tank purchasing the fuel from another source. It would also be the case that many of GAP’s customers has access to their own fuel bowsers for refuelling purposes.

GAP treated the supply of the hire of equipment as separate to the supply of red diesel. Accordingly, it applied 20% VAT to the hire and 5% VAT to the fuel supply (as the conditions were met for the reduced rate to be applied in these circumstances).

HMRC formed a different view during an inspection of GAP’s VAT accounting records and contended that there was a single supply of the hire of equipment including the red diesel, and as such single standard-rated supplies were being made. HMRC assessed GAP for under-declared output tax.

GAP appealed to the First Tier Tax Tribunal (FTT) and the appeal was successful. The court found that the supply of hired equipment and the supply of fuel were separate supplies. Some of the key determining factors in reaching this conclusion were:

  1. At the time the plant hire was delivered to the customer, GAP did not know if or when it would be supplying red diesel when the equipment was returned.
  2. When customers hired the equipment, the customer was made aware that they could opt for GAP to refuel it when it was returned. The customer also knew that this would incur an additional charge which was not included in the hire charge cost.
  3. The supply of the fuel did not better the use or ‘enjoyment’ of the equipment, as the choice to refuel or not was made by the customer at the end of the hire period, when use of the equipment was no longer required.


In arriving at its decision, the FTT made reference to the case of The Honourable Society of Middle Temple FTC/45/2012. The decision in that case drew from earlier precedent cases and summarised the principles to be applied when determining whether there is a single or multiple supply. The FTT in the GAP case took the same approach and reproduced those principles in its decision. The key principle here was that the supply of the hired equipment and the supply of red diesel, while being clearly connected, were not so closely linked that they formed a single transaction. This principle in this context originates from Levob Verzekeringen and OV Bank [2006] STC 766.

In the GAP case, the FTT observed that the customer had a real economic choice to make whether they refuelled the equipment themselves prior to returning it, or to opt for GAP to refuel for the additional charge. As the fuel supply was an optional extra and was not included in the original hire cost, the supplies were not deemed close enough to be seen as a single transaction.

Care should be taken when applying a particular VAT position based on a supply or multiple supply argument when there is more than one element being supplied, and that the case law principles are being considered and applied objectively. Specialist advice is recommended.

This case does highlight however that even when both the taxpayer and HMRC are considering the same case law principles, different conclusions can be reached. Both GAP and HMRC sought to rely on Middle Temple in their statements to the FTT.

Please contact Nick Hart, VAT Director for further details.

The First Tier Tax Tribunal (FTT) decision in Realreed Ltd vs HMRC (2023) TC09013  just before Christmas threw a cold towel on the holiday cheer for some serviced accommodation providers. The case hinged on the VAT treatment of income from a London apartment block, ultimately concluding that VAT exemption didn’t apply due to the nature of the service provided, and that VAT was due on the income received.

The appellant, Realreed Ltd, owned the freehold of a block of 656 flats. 421 of these were let on VAT exempt long leases, to which HMRC had no issue. The issue was with the remaining 235 flats (the Apartments) in which additional services were provided to the occupier (services of a cleaner, dry cleaning, Wi-Fi, luggage storage etc) by Chelsea Cloisters Services Limited (CCSL), a company under common ownership with Realreed.

Realreed treated all of its supplies as VAT exempt, but following an inspection in 2017, HMRC disagreed, concluding that the provision of the Apartments was akin to hotel accommodation and therefore excepted from the VAT exemption pertaining to land and property. A significant assessment for under-declared VAT in excess of £4.5 million followed. Realreed appealed that decision as well as putting forward judicial review proceedings that questioned HMRC’s awareness of the VAT treatment following numerous historical HMRC inspections in previous years. Prior to the decision of this appeal, the judicial review case was dismissed by the High Court.

While Realreed argued that its supplies of the Apartments were fundamentally different from those offered by hotels or similar establishments, and therefore qualifying for VAT exemption, HMRC countered by emphasising the similarity of services and marketing as hotel-like, rendering the services subject to standard rated VAT.

Realreed further argued that given CCSL provided all the ancillary services to the occupiers of the Apartments, the services supplied by CCSL shouldn’t be taken into account when determining the VAT liability of the services supplied by Realreed. The FTT dismissed this and remained focused on the question of: are the Apartments a “similar establishment” to a hotel? In answering this question, consideration was given to what was on offer at the Apartments and the overall experience offered to the occupier. The FTT further stated that the answer to this question didn’t in any way turn on whether the person providing the sleeping accommodation (Realreed) is also providing the other services needed to make the Apartments a hotel or similar establishment. The FTT accepted that Realreed was letting the Apartments and that this is all it was doing, however it did not accept that services supplied by a different person (CCSL) were to be left out of account when deciding whether the place where Realreed makes those supplies is a similar establishment to a hotel.

The FTT dismissed Realreed’s appeal, concluding the Apartments were an establishment similar to a hotel, both in the ordinary meaning of that term and because the Apartments served as premises where furnished sleeping accommodation is provided, which is used by or held out as being suitable for use by visitors or travellers.


This case serves as a valuable reminder of the complexities of VAT in the serviced accommodation sector. Every element of the supply, including associated services, plays a role in determining the VAT liability.

The Realreed case, alongside Sonder Europe Limited [2023] UKFTT 610 (TC) case (November 2023 VAT Update) underscores the evolving VAT landscape in this sector. Businesses must keep pace with these developments and proactively seek expert advice to navigate the intricacies and maintain compliance. It is interesting that in the case of Realreed the supply was considered to be one similar to hotel accommodation, and not one which was a licence to occupy holiday accommodation. In the case of supplies of sleeping accommodation in a hotel or similar establishment, there are provisions which allow an effective lower rate of VAT to be accounted for with respect to long stays. Such an opportunity is not available with respect to holiday accommodation and therefore the distinction between the two is important. The specific facts in each case would determine how the supply should be correctly categorised, and on that basis whether the lower rate can be applied to long stays or not.

Please contact Nick Hart or John Butterfield, VAT Directors, for assistance with the VAT treatment of supplies of accommodation.

From 1 January 2024, operators of digital platforms are required to collect additional information from the parties that sell services through those platforms, and report that information to HMRC. The first reporting period ends on 31 December 2024 and the submissions for that period are due by 31 January 2025. These new measures mirror the DAC7 reporting obligations introduced in the EU and other jurisdictions, and the UK is following suit by implementing recommendations made by the OECD.

The aim of the provisions is for HMRC to have greater visibility over the activity of sellers who are renting rooms, car park spaces or properties, hiring means of transport, selling goods or providing personal services, and using online platforms to facilitate those activities.

Platform operators could face penalties if they do not collect from sellers and report the appropriate information to HMRC.


These new reporting requirements for online platforms have featured in many headlines over the past few weeks, with the tagline of the ‘side hustle’ being widely used. The focus of many of those articles has been income tax and the fact that HMRC will have more data about income received by individuals, which they would then expect to see being declared for tax purposes where applicable. HMRC have been quick to dispel fears that tax is now payable on activities which are not considered a trade and have released a new information sheet to clarify the position. There will likely be a VAT focus from HMRC as well, as they seek to continue to identify parties which should be VAT registered and are not currently. They will also have data for sole proprietors who are VAT registered but are perhaps not accounting for VAT on their ‘side hustle’ income when they should be. There will likely be debates with HMRC in some cases whether the ‘side hustle’ is indeed a business activity for VAT purposes, or whether it’s merely a hobby or an activity undertaken that doesn’t meet the definition of business in this context.

If you operate an online platform through which third parties sell their services and you’re unsure how the new reporting requirements affect you, please get in touch. Similarly, if you utilise online platforms to sell your services, and aren’t currently VAT registered or accounting for VAT on the gross income (inclusive of platform fees), please contact us for assistance in assessing your VAT position.

Get in touch with Nick Hart, VAT Director for further details.

If you operate as a payment service provider in the EU, either acting for the payer or the payee, you will likely have new reporting requirements under measures which take effect from 1 January 2024.

CESOP, the Central Electronic System of Payment information, is the central EU database where information is submitted by payment service providers established in the EU on cross border payments, primarily with respect to e-commerce transactions. Reporting under CESOP is a measure designed to tackle VAT fraud within the e-commerce space, and the enacting legislation has been written into the EU VAT Directive.

The data collected through quarterly submissions, the first of which would be due in April 2024, is aggregated and reconciled with other EU information databases. Anomalies subject to certain criteria are then reported to an EU anti-fraud network called Eurofisc.

For the definition of payment service providers who are obliged to report transactional payment information, you have to refer to other EU legislation. In short, it includes credit institutions, electronic money institutions, post office giro institutions operating under national law, and payment institutions.


A raft of measures are being proposed, and implemented, in the EU with the aim of tackling VAT fraud, which continues to be an issue. CESOP reporting is the latest of these measures. UK established payment service providers will not be impacted unless they have operations in the EU to the extent they’re considered established in the EU. If you’re unsure if this applies to you and your business, specialist advice should be taken.

If you’d like more information on CESOP in the EU, please get in touch with Nick Hart or Callum Richards.

Contact Us

Sean McGinness
Partner, Edinburgh

Key experience

Sean is Head of the Edinburgh office.