The VAT treatment of debt factoring has long been problematic and, dare one say, somewhat counter-intuitive. In MKG-Kraftfahrzeuge-Factoring (Case C-305/01), the CJEU held that a factor purchasing debts from its creditor client was providing a service to that client. Most recently, in A Oy (Case C-232/24), the CJEU has now held that the same approach applies in relation to all forms of factoring arrangements, including those which do not involve the purchase of the underlying debts. The decision does have the benefit of applying the same broad approach to factoring arrangements, treating them essentially as a service relieving the client of the debt recovery and debt risk, amounting to a taxable supply of debt management. However, this does depend on being able to distinguish “factoring” from other forms of arrangement such as a straightforward purchase of debt at market value or the making of loans to the client with the underlying debts as security. In practice, this may be easier said than done!
In this edition, as well as looking at the CJEU decision on the VAT treatment of factoring, we also cover the following developments:
- The decision of the Supreme Court concerning NHS car parking on the scope of the exclusion for public bodies from being treated as taxable persons
- HMRC’s announcement in Revenue and Customs Brief 7 (2025) that they will return to whole entity treatment of establishments part of a VAT grouped entity
- Further Budget measures dealing with taxis and TOMS, the donation of business goods to charity and the end of the current low value consignment relief
- An instructive decision on the scope of HMRC’s power to contest input VAT claims
- A further FTT decision that a person importing goods on behalf of their principal cannot recover VAT charged on their importation
- A CJEU decision on third party consideration, which also clarifies earlier decisions concerning the impact of uncertainty on payments as consideration
- HMRC’s announcement in Revenue & Customs Brief 6 (2025) that they have accepted the decision in Hastings Insurance concerning the illegality of legislation introduced to counter so-called offshore insurance loop arrangements.
In addition, we produce more detailed reports on the most significant tax developments so if you scroll to the bottom, there's a list of the most important issues we have covered, with links to our more detailed reports.
If you are interested in finding out more about the below or have a specific indirect tax query, please don't hesitate to get in touch.
Debt factoring arrangements
In A Oy (Case C-232/24), the CJEU has held that all forms of debt factoring involve a taxable supply of debt management services. This is true whether the factoring arrangements involve "invoice factoring" (under which A granted financing to its clients in the form of credit based on the client's unpaid invoiced debts, whilst taking responsibility for collecting the debts) or "trade factoring" (under which A purchases invoiced debts from clients up to agreed amounts, based on A's risk assessment of the client's business).
In addition, the Court held that factoring arrangements amount to a single VATable supply of debt collection services, noting that "from the point of view of both the client and the factor, a supply of factoring services constitutes, in principle, a single economic transaction, the main purpose of which is to enable the client to transfer responsibility to a third party for the recovery and collection of its debts, which it would be artificial to split".
Trade factoring arrangements essentially involve the purchase of debts by the factor and distinguishing this from cases of straightforward debt purchases (where the supply is from the client to the purchaser rather than the other way) may not be straightforward. Equally, the question whether the VAT system should recognise the element of credit involved in invoice factoring arrangements is not straightforward. Nevertheless, the Court has held that the essential aim of the parties involves debt management and collection, and any element of credit is ancillary. However, it should be noted that HMRC’s approach set out in Notice 701/49, where HMRC do recognise some fees charged by factors as being exempt from VAT as in connection with an exempt supply of credit, is at odds with this decision.
Read our Insights article here.
VAT and public bodies
Car parking charges at hospitals are already an extremely emotive subject, but that hasn’t stopped HMRC seeking to make itself even more unpopular by insisting on VAT being levied on those charges. In Northumbria Healthcare NHS Foundation Trust v HMRC [2024] UKSC 37, the NHS Trust argued that its supplies were not taxable as it was acting as a public authority in providing car parking since it was acting under a “special legal regime” (SLR) (public bodies acting as public authorities are not treated as a taxable person for VAT purposes), but lost its case before the FTT and UT. The Court of Appeal upheld the Trust’s appeal. considering that the extensive Parking Principles issued by the Department of Health under the statutory framework of the NHS Act meant that the legal conditions under which the Trust offered car parking differed in material respects from that applicable to private operators. However, the Supreme Court has now overturned that decision.
The Supreme Court held that simply following guidance and acting under a general public law duty of good practice was insufficient to amount to an SLR. In addition, the Court considered that treating the Trust’s supplies of parking as non-taxable would, in any event, lead to significant distortions of competition (preventing the application of the exception).
The decision is an important one not just in the context of hospital parking (where it is understood that several cases were stood behind this case) but also in the Supreme Court’s analysis of the conditions to be met for a public body’s activities to fall outside the scope of VAT more generally.
Read our Insights article in full.
Revised VAT grouping rules and the Skandia judgment
As part of the Autumn Budget, HMRC published Revenue and Customs Brief 7 (2025) confirming that the UK will be applying unconditional whole entity VAT grouping in the UK. This reverses HMRC’s previous policy and HMRC now consider that an overseas establishment of a business VAT grouped in the UK should be treated as part of that VAT group, even when located in an EU member state that does not operate whole entity VAT grouping.
Under HMRC's previous policy, UK businesses were required to account for VAT under the reverse charge mechanism on certain intra-group services received from an overseas establishment of a UK-established entity where that establishment was part of a separate taxable person - where the overseas establishment was VAT-grouped in a member state that operated an 'establishment only' VAT grouping provision. This position has been reversed by Revenue and Customs Brief 7 (2025) and is no longer effective. The change appears to have retrospective effect, acknowledging that some VAT groups may have accounted for VAT in line with the previous policy may now be eligible to reclaim overpaid VAT through the usual error correction notification procedure.
Exclusion of private hire and taxi journeys from TOMS
The Autumn Budget announced a significant change to the VAT treatment of private hire vehicle and taxi journeys, following the Upper Tribunal's decision in Bolt Services Ltd, which had found that such supplies (where the taxi operator acted as principal) could fall within the Tour Operators' Margin Scheme (TOMS). From 2 January 2026, legislation will amend the scope of the TOMS to exclude suppliers of private hire and taxi journeys, except where these journeys are supplied in conjunction with, and ancillary to, certain other travel services such as accommodation or passenger transport.
Business donations of goods to charity
The Autumn Budget introduces a targeted VAT relief for businesses donating goods to registered charities, with effect from 1 April 2026. This measure is designed to encourage charitable giving by removing the requirement for businesses to account for VAT on eligible goods donated for onward distribution or use in a charity's services. Legislation will amend Schedule 4 of the Value Added Tax Act 1994 to create a new exception to the deemed supply rules for business goods donated free of charge to charities. The relief applies to goods within defined per-item value limits, with higher thresholds available for specified goods such as technology and household appliances.
Treatment of low value imports
The Autumn Budget sets out significant reforms to the customs and VAT treatment of low value imports (LVIs), defined as individual consignments valued at £135 or less sent from overseas businesses to UK recipients. The government will remove the existing LVI relief, making these consignments subject to tariffs and introducing new customs arrangements and custom duty payments. New LVI customs arrangements will apply to most consignments valued at £135 or less. These reforms are scheduled for introduction from March 2029 at the latest, allowing time for system development and industry preparation. HM Treasury and HMRC have launched a joint consultation seeking input from a variety of stakeholders on the design and implementation of the new arrangements, with responses due by 6 March 2026.
The reforms are intended to ensure that LVIs are subject to the UK Global Tariff schedule and to support improved compliance, while maintaining relief for non-commercial gifts valued at £39 or less sent between private individuals. Businesses involved in the sale and movement of LVIs should monitor (and consider participating in) the consultation process.
Valid VAT invoices
The decision in Eurocent (Buckingham) Limited v HMRC [2025] UKFTT 1253 demonstrates the important point that the question whether a VAT invoice is valid is separate to the question whether the relevant supplies took place at all. In this case, HMRC’s decision letter focussed only on the question whether the invoices were valid and, if not, whether they should have exercised their discretion under regulation 29(2) to allow input VAT recovery in the absence of a valid VAT invoice. In those circumstances, they were not entitled to raise broader questions concerning whether or not the actual supplies took place at all where it was held that the invoices were valid VAT invoices compliant with regulation 14.
Whilst it is clear that HMRC can deny input VAT on the basis that the relevant supplies did not take place and can equally take into account the evidence of whether supplies took place in exercising its discretion under regulation 29(2) where there is no VAT invoice, it is not able to use its discretion under regulation 29(2) more broadly where a VAT invoice is, on its face, valid.
Read our full Insights article here.
Imported goods
The FTT has again considered the input VAT position of an importer, concluding, in agreement with the earlier decision of Piramal Healthcare UK Ltd, that an importer who is not the owner of the goods imported has, in general, no right to recover import VAT charged on the cost or value of the imported goods, since that cost or value is not a cost component of its onward supplies: TSI Instruments Ltd v HMRC [2025] UKFTT 1278.
Although TSI advanced additional arguments, not raised in the earlier Piramal case, the FTT concluded that import VAT can only be credited as input tax where the taxable person is the owner of the goods (or has the right to dispose of the goods as their owner) or where the cost or value of the goods is reflected in the price of specific output transactions or in the price of goods and services supplied in the course of their economic activities.
The decision is ultimately in line with HMRC’s belated guidance published in its R&C Brief 02/19. However, the position regarding the correct recovery of import VAT was not always as clear cut, hence the degree of ambiguity in the UK legislation.
Read our Insights article here.
Contingency fees and third party consideration
Do statutory payments made by the losing party in litigation to the lawyer of the successful party amount to third party consideration for VAT purposes? For payments to amount to consideration, they must be a direct link between the service and the payment. This normally requires some contractual or other mutual obligation for payment between the recipient of the service and service provider, but in TPT v Financial Bulgaria EOOD (Case C-744/23) the lawyer had provided their services to the successful litigant on a pro bono basis. Nevertheless, the Bulgarian statutory rules included a provision entitling the lawyer to be paid a fee by the losing party in these circumstances. Was this payment consideration for the lawyer’s services provided to the successful litigant?
The CJEU has held that the payment was consideration for those services and, as such, subject to VAT. TPT’s lawyer was a taxable person, provided services to TPT under a contract providing for reciprocal performance and received a payment calculated by reference to those services from the losing party under the Bulgarian statutory provisions. Therefore, the situation clearly met the definition of a supply for consideration. Neither the fact that the payment was required by legislation, came from a third party or was contingent on the outcome of the litigation prevented the existence of the necessary direct link.
Read the full Insights article here.
The offshore insurance loop
In Hastings Insurance Services Ltd v HMRC [2025] UKFTT 275, the FTT held that restrictions introduced in 2018 on the ability of insurance intermediaries to recover input VAT connected with supplies to an insurer located outside the EU were contrary to provisions of the Principal VAT Directive. The FTT held that the UK was not entitled to restrict the scope of input VAT recovery to situations where the ultimate person insured belongs outside the UK.
HMRC have now published Revenue & Customs Brief 6 (2025) confirming that they accept that the restrictions introduced in were contrary to EU law and ineffective in relation to insurance intermediary services supplied outside the UK before 31 December 2023. As such, this “means that insurance intermediaries supplying services outside the UK can rely on direct effect of EU law to recover relevant input tax incurred prior to 1 January 2024, whether the insured party is in the UK or not”. Insurance intermediaries that supplied services outside the UK on or before 31 December 2023, now have the opportunity to review and recover over-restricted input tax. However, the R&C Brief points out that from 1 January 2024, the Retained EU Law (Revocation and Reform) Act 2023 means that it is no longer possible to rely on directly effective rights, nor to disapply domestic legislation that is inconsistent with such rights or any other aspect of EU law.
Read our full Insights article here.
Other issues we have recently covered
Our expert analysis and commentary on the economic and tax aspects of the 2025 UK Budget.
Taxation of long term employee incentives.
The Upper Tribunal has held that the House of Lords decision in Abbot v Philbin does not require all contingent rights that might possibly be monetised to be taxed on receipt rather than on payment: Saunders v HMRC [2025] UKUT 374. In this case, a payment made to an ex-employee under the terms of contingent rights to pay participants a sum of money in the event of a sale of the group was taxable as earnings from his employment. It was not the grant of the rights themselves that were the taxable event, even though it was possible to conceive that they might be turned to value in some way.
Tax podcasts
Our tax podcasts can be found here.
.jpg?crop=300,495&format=webply&auto=webp)
.jpg?crop=300,495&format=webply&auto=webp)
_11zon.jpg?crop=300,495&format=webply&auto=webp)
.jpg?crop=300,495&format=webply&auto=webp)