VAT Insights - May 2026

The VAT single/multiple supply case law is both some of the most extensive and also some of the most fact sensitive in all the VAT jurisprudence. Many cases will simply turn on their own facts, perhaps representing useful examples of the application of the rules but without being determinative of other (even similar) circumstances. HMRC’s guidance on the application of these rules to packaging does not, however, take such a fact sensitive approach at all. It simply states (for example) in Notice 701/14 that “You must treat the following types of containers as separate supplies in their own right and account for tax on them… hampers and picnic baskets”. The FTT in Clearwater Hampers Ltd v HMRC has rightly criticised this approach and HMRC’s attempt to treat its own guidance as, in effect, the law. It is clear that a fact sensitive analysis is required to determine whether packaging is simply ancillary to the principal supply or part of an indivisible single supply and in this case the FTT was clear that lidded baskets were simply ancillary to the products contained within them, irrespective of the fact that they might have a subsequent use or intrinsic value separate to the hamper contents.

In this edition, as well as looking at the decision in Clearwater Hampers Ltd v HMRC, we also cover the following developments:

• An Advocate General opinion concerning the application of the TOGC and the capital goods scheme adjustment rules to the sale of a business where the business premises were leased to the purchaser;
• The CJEU decision on input VAT recovery related to expenditure required by statute to run a healthcare business;
• HMRC’s response to the Court of Appeal decision in Colchester Institute Corporation on the VAT treatment of grant funding of education.

This month, we are delighted to announce the continued growth of our tax practice, which now has a presence across 10 jurisdictions, including Belgium, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Spain, the United Arab Emirates, and the United Kingdom. As part of this expansion, we are pleased to welcome Laurent Voisot as Partner in our Brussels office, marking the launch of our tax practice in Belgium.

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.

Single supplies and packaging

The decision of the FTT in Clearwater Hampers Ltd v HMRC addresses the novel question whether an item can be ancillary to two different supplies. The taxpayer in this case provided both zero-rated food and taxable food/drink in the hampers it sold. It argued that the lidded baskets it used to package these supplies were simply part of two single supplies as they were merely ancillary to those supplies and not an aim in themselves for the typical customer, and the VAT treatment applied to the hamper should be apportioned accordingly. The FTT has agreed, considering there is nothing in principle to prevent an item being ancillary to two separate supplies and therefore, on the basis of the Card Protection Plan single supply analysis, part of two separate single supplies. (The FTT suggested that this analysis would be much more difficult to apply to the Levob type of single supply which requires that the elements to be so closely linked as to form a single indivisible economic supply which it would be artificial to split).

It is also worth noting that the FTT also essentially held that HMRC guidance on whether packaging forms a separate supply is incorrect. HMRC relied heavily on its own guidance in VAT Notice 701/14 and Notice 700, an approach which drew criticism from the FTT: “we considered it disappointing that the main points that HMRC ran before us were the VAT Notice 701/14 Argument and the Notice 700 paragraph 8.2 Argument, both of which treated the HMRC guidance relied upon as though it was law, when it is not law and does not accurately reflect the law.”

Read our Insights article here.

Lettings and TOGCs

In 2011, the CJEU in Schriever held that a TOGC could occur where the transferee only gained use of the necessary business premises to continue carrying on the business by way of letting. The taxpayer in A&P Deco (Case T-397/25) has sought to use this decision to argue that it was not required to adjust its initial input VAT recovery on the renovation of business premises under the capital goods scheme (CGS) where it entered into an exempt lease with the purchaser of its business. It argued that the lease was part of a TOGC and was ignored for VAT purposes and thus did not affect the CGS calculation. In addition, it pointed out that on a TOGC, the transferee generally takes over the CGS position of the seller and in this case the purchaser continued to carry on the taxable business.

The AG has rejected these arguments. Firstly, the CJEU in Schriever did not hold that the letting was part of the TOGC, merely that a letting of the business premises was sufficient to enable the purchaser to continue carrying on the business such that the transfer of assets etc qualified as a TOGC. Even if that was not correct, the AG has pointed out that unlike a sale of property, the transferor in this case continued to hold an interest in the business premises as landlord. As such, the transferor would remain the holder of a right in the property (only a time limited right to use the property being granted) and it would remain subject to the rules requiring adjustment of its initial input VAT recovery.

See our Insights article here.

Statutory expenditure and attribution of VAT

Does a statutory requirement to incur expenditure on certain goods as a requirement to carry on a business mean that the expenditure has the necessary direct and immediate link to the whole of that business? The CJEU has held not in Oblastní nemocnice Kolín, a. s., nemocnice Středočeského kraje v Odvolací finanční ředitelství (Case C-513/24).

The taxpayer incurred expenditure on equipment in order to obtain a licence to operate as a healthcare provider. The business ultimately established not only made VAT exempt healthcare supplies, but also certain taxable healthcare supplies and other additional taxable services (such as clinical studies and internships for trainee doctors). Did the statutory requirement to have the equipment provide a direct and immediate link to the whole of the business which depended on the licence to operate as a healthcare provider? The Court has held not. Rather it is necessary to look at the individual items acquired and determine whether each item had a direct and immediate link with specific activities or, failing that, the business as a whole. Only if it could be shown that the equipment was intended to be used for both taxable and exempt healthcare services (or additional taxable supplies) could input VAT be attributed between exempt and taxable supplies.

The decision is not surprising in rejecting what essentially amounts to a "but for" approach to input VAT attribution. It is simply not sufficient to argue that the relevant activities could not have been provided "but for" the relevant expenditure. The "direct and immediate" test of input VAT attribution requires a much closer nexus between expenditure and use, such that even a statutory requirement to have in place certain equipment to carry out healthcare services on which the additional services depended was an insufficient link.

Read our full Insights article here.

VAT and grant funding: HMRC consultation

Following on from the recent decision in Colchester Institute Corporation v HMRC [2026] EWCA Civ 363, HMRC has published a Policy Paper on the VAT treatment of public funds received by further education institutions. In that decision, the Court of Appeal held that funding was paid in consideration of CIC delivering approved courses to eligible students and not simply as general financial support, such that it amounted to consideration for (exempt) supplies. The publication notes that HMRC is not appealing that decision and will now consider the terms of the judgment in consultation with relevant stakeholders. Any policy change will be announced by way of a Revenue & Customs Brief in the future.

Until the result of the further consultation is known, affected education colleges and schools which treat grants as outside the scope of VAT can continue to do so. There may be an opportunity for further education colleges and schools to put in VAT reclaims, however treating grants as consideration for a supply will require the recipient to charge VAT on those grants (where the supplies are not exempt), and so the outcome of the case and HMRC’s consultation may not in general be favourable for businesses in receipt of grant funding.

Read HMRC’s Revenue and Customs Brief 3 (2006) here.

Other issues we have recently covered

Capital allowances and windfarms

In an important decision for large scale capital projects, the Supreme Court has overturned the decision of the Court of Appeal which had allowed a claim for capital allowances on expenditure on environmental and technical studies in advance of designing and installing wind turbines on an offshore windfarm: Orsted West of Duddon Sands (UK) Ltd and others v HMRC [2026] UKSC 12. The Supreme Court has held that expenditure "on the provision" of plant should be given a restricted meaning, limited only to expenditure directly on the provision, including installation, of the plant and not on broader reports and surveys which enabled or contributed to the project as a whole. The decision will be a disappointment to those operating in the sector and also from an environmental and net zero perspective. The relevant expenditure in this case was significant (some £48m) and failure to allow capital allowances on such expenditure may discourage investment into this vital part of the energy industry.

Treaty withholding tax exemption not main purpose of loan acquisition

The Court of Appeal has held that having a main purpose to “take advantage of” Article 12(5) in the UK-Ireland Double Tax Treaty (tax on interest) must be read as requiring more than simply intending to “obtain the benefit” of that provision: HMRC v Burlington Loan Management DAC [2026] EWCA Civ 461. To trigger the wording of the anti-avoidance article, it requires that the purpose is to obtain the benefit in a way that is contrary to the object and purpose of the treaty. More generally, the Court (including Falk LJ) has provided further important guidance on the motive test in anti-avoidance provisions, including the unallowable purpose context.

Interest free loans to employees as earnings?

The Court of Appeal has emphasised that a loan to an employee will not normally amount to a payment of earnings (in the absence of the application of the disguised remuneration rules) in a case involving the payment of monies to an EBT and an interest free loan from the EBT to a director owner: HMRC v Currell [2026] EWCA Civ 445. The FTT in this case had been wrong to consider that the payment of monies to the EBT amounted to a payment of remuneration and this scenario could be distinguished from the Supreme Court decision in Rangers.