VAT Insights - November 2026

First announced in November 2021 as part of the review of tax administration for large businesses, HMRC’s Guidelines for Compliance (GfC) are a series of publications addressing what HMRC regards as complex, widely misunderstood or novel risks across different tax regimes. Their stated purpose is to help taxpayers avoid non-compliance by explaining HMRC’s view of those risks and by setting out actions and behaviours that HMRC expect taxpayers to take to minimise those risks. For taxpayers, their importance lies not simply in the assistance they may offer, but also in what they reveal about HMRC’s approach to the issues covered and tax compliance more generally. They should, therefore, be compulsory reading for taxpayers. Against that background, GfC21 “Help with VAT treatment of cryptoassets”, the most recent in the series, is something of a disappointment. GfC21 brings together various parts of HMRC’s existing guidance on the VAT rules relevant to transactions in cryptoassets, but, whilst a helpful overview of the broader VAT issues that transactions in cryptoassets give rise to and the consequences of the involvement of platform operators, it fails to provide any real detailed analysis of the complex issues around identification of the nature of cryptoassets for VAT purposes.

In this edition, as well as looking at GfC21 in more detail, we also cover the following developments:

• Another decision on the scope of the jurisdiction of the FTT to consider public law arguments;
• A decision highlighting the need for management fees to be clearly identified and chargeable for a holding company to be carrying on an economic activity;
• An FTT decision demonstrating the dangers of failing to clearly document commercial arrangements and the VAT consequences that can result from false assumptions as to the nature of supplies; and
• A brief overview of the VAT related measures contained in the Autumn Budget.

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.

GfC21: Help with VAT treatment of cryptoassets

HMRC have released a further publication in their Guidelines for Compliance series, “Help with VAT treatment of cryptoassets”. GfC21 brings together various parts of HMRC’s existing guidance on the VAT rules relevant to transactions in cryptoassets as a means of aiding compliance. The guidance covers the VAT liability of transactions in cryptoassets, VAT registration, required customer information, place of supply rules and accounting for VAT both for UK and overseas businesses.

The guidance explains that “Cryptoassets (sometimes called ‘tokens’ or ‘cryptocurrencies’) are a digital representation of value that are created, stored and transferred securely using public computer networks, and cannot be altered or destroyed”. However, the guidance is then remarkably thin in assisting how any particular cryptoasset transaction should be treated and the significance of the underlying asset or service to the VAT analysis. GfC21 does, however, deal more specifically with non-fungible tokens (NFT), unique digital certificates that represents ownership of an asset. The guidance explains that the VAT treatment of an NFT will depend on the asset it represents. For example, if the underlying asset is a piece of digital art, then the same VAT treatment as digital art will usually apply. If the underlying asset is a physical item, then the same VAT treatment as the physical item will usually apply.

There is also more in the way of guidance for dealing with VAT where cryptoassets are supplied through an online platform. Overall, however, whilst GfC21 provides a helpful overview of the broader VAT issues that transactions in cryptoassets give rise to and the consequences of the involvement of platform operators, it fails to provide any real detailed analysis of the identification of the nature of cryptoassets for VAT purposes.

Read our Insights article in full

Legitimate expectation appeals in the FTT

There is now a long and seemingly contradictory history of decisions on the jurisdiction of the FTT to hear public law arguments, such as legitimate expectation. The latest decision is Abbey Group Ltd v HMRC [2026] UKFTT 1418 and, in it, the FTT has favoured the restrictive approach taken in the more recent UT decision in Queenscourt Ltd v HMRC [2026] UKUT 00195 over that in KSM Henryk Zeman v HMRC [2021] UKUT 182.

The taxpayer in this case accepted that input VAT recovery was correctly blocked, but appealed HMRC recovery assessments claiming that it had received assurance, wrongly, from HMRC during a number of visits that it was entitled to recover the input VAT. HMRC contended that the FTT was not entitled to consider such legitimate expectation arguments and, even if it was, there was no legitimate expectation in this particular case.

On the question of its jurisdiction, the FTT held that it could not entertain public law arguments in this case. It considered that the decision to the contrary in Zeman was only obiter (such that it was not bound) and that to treat a taxpayer’s appeal against a VAT assessment as the equivalent of enforcement proceedings (which entitle reliance on public law arguments) was wrong. In addition, but with some hesitation, the FTT held that whilst the statutory appeal in this case was against an assessment under s.73(2) and s.73(2) gives HMRC discretion regarding whether to assess for wrongly claimed input VAT, the discretionary nature of the statutory provisions did not allow the FTT to hear legitimate expectation arguments. Ultimately, the only certain way to raise public law arguments is to commence judicial review proceedings as well as statutory appeals.

Read the case in full here

Holding companies and speculative management charges

There may be a temptation amongst some groups to have very informal arrangements for the payment of consideration for management services, such as only choosing to charge fees where a subsidiary becomes profitable. The decision in Victoria Oil & Gas plc v HMRC [2026] UKFTT 1246 highlights the dangers of such an approach from a VAT perspective. The decision reinforces the point that for supplies to be made, there must be an agreement as to the consideration to be paid for supplies. In this case, there was no service agreement fixing the nature or value of the services, no invoices to subsidiaries, and no evidence of any enforceable obligation to pay. HMRC therefore considered that there was no legal relationship involving reciprocal performance and no direct link between any services said to have been provided and any consideration received or receivable. The holding company’s policy was only to make management charges to subsidiaries where they were commercially successful and an intention to charge subsidiaries in a way that was “conditional, speculative and unenforceable” did not give rise to taxable supplies. The FTT accepted HMRC’s arguments.

The decision is reminiscent of the earlier UT decision in Norseman Gold [2016] UKUT 69, which held that where management services are supplied by a holding company but the charge for those services is only set and levied subsequently, without any clear prior obligation, there is no consideration for VAT purposes. As a result, the services are not taxable supplies and the holding company has no entitlement to input VAT recovery. These cases demonstrate the importance of having in place clear contractual arrangements for the payment of management charges for the activities of a holding company to qualify as an economic activity. A simple intention to charge a fee at a later time should a subsidiary become profitable is insufficient to demonstrate an economic activity.

Read the case in full here

Payroll services and VAT

For a payment to amount to input VAT deductible by the payer, it must have been properly chargeable as VAT by the supplier of services. This was the issue in ITS Plant-tech Ltd v HMRC [2026] UKFTT 1299, where HMRC took the view that amounts charged as VAT on invoices ITS received from its provider of payroll services were not actually VAT.

ITS had originally operated its own payroll function in-house, but from 2019 it entered into arrangements with external providers of payroll services. The amounts invoiced by the payroll providers included the whole of the salaries of employees and VAT was charged on the full amount invoiced. Following a review, HMRC took the view that the staff were actually ITS’s employees, such that the supplies made by the payroll suppliers were not supplies of staff or labour and the only supplies made were of payroll services (such that VAT was only chargeable on part of the invoices). On the evidence, the FTT agreed with HMRC and denied input VAT recovery.

The decision highlights the importance of correctly and clearly documenting arrangements. Whilst the director of ITS genuinely believed that a transfer of employees had taken place, VAT recovery depends on the substance and economic reality of the arrangements. The correct course of action in this case would have been for ITS to seek recovery of the overcharged VAT from the payroll providers and for those providers to seek to recover the overpaid VAT from HMRC (subject to normal time limits).

Read the case in full here

Budget 2026

Budget 2026 contained a surprising number of VAT related announcements. Our full Budget coverage can be found below, but the highlights from a VAT perspective included:

• Confirmation that the existing VAT online marketplace liability rules will be extended to include sales by UK businesses from October 2027. Online marketplaces will become responsible for collecting VAT on qualifying sales by UK businesses that are VAT-registered or exceed an annual sales threshold of £90,000 on an individual platform.
• An announcement that the government will restrict the VAT reverse charge for business-to-business supplies of services from overseas to cases where the receiving UK business is VAT registered. Where the UK business receiving the services is not VAT registered, the overseas supplier will instead be required to charge and account for UK VAT. The change will take effect from April 2027.
• Announcement of a change to the VAT treatment of taxi and private hire passenger transport services supplied through an agent, taking effect from 2 January 2028. The government will legislate to deem the services to be supplied by the agent rather than the driver. An operator within scope will therefore have to charge VAT on the full value of the fare. The deeming rule will apply only to businesses whose annual fare turnover exceeds a specified threshold, which is yet to be determined (though £50m annual fare turnover is the lead option).
• A call for evidence, open until 31 January 2027, on whether the Tour Operators’ Margin Scheme (TOMS) should be reformed or withdrawn. Options include full or partial withdrawal, optional participation by transaction or whole business, restoring zero-rating for margins attributable to qualifying passenger transport, and replacing annual adjustments with quarterly or supply-by-supply calculations
• Confirmation that the government will proceed with a new VAT zero rate for land sold to registered providers of social housing, with effect from 1 April 2027.
• Announcement that legislation will be included in the Finance Bill to clarify that electricity supplied through publicly accessible and workplace electric vehicle charging points is subject to 20% VAT. The legislation will take effect from 1 November 2026. The measure comes in the wake of the recent FTT decision in Charge My Street Ltd v HMRC [2026] UKFTT 318 (TC), which held that certain public EV charging supplies could qualify for the reduced 5% VAT rate.
• Confirmation that VAT invoices will have to be issued in a specified electronic format from 1 April 2029. An implementation roadmap has been published, committing to provide full policy and technical design details by April 2028. The measure forms part of the tax administration modernisation programme outlined in HMRC’s Transformation Roadmap.

Read our full Budget 2026 coverage here

Infringement proceedings against Germany in relation to the VAT exemption for credit management

The European Commission has opened an infringement procedure by sending a letter of formal notice to Germany (INFR(2026)4020) for failing to correctly transpose and apply the VAT exemption laid down in Article 135(1)(b) and (c) of the PVD. These provisions require Member States to exempt from VAT the management of credit by the person granting it and the management of credit guarantees by the person granting the credit. The Commission considers that the relevant provisions of German VAT law do not cover these services and that, as a result, certain services, notably those supplied by syndicate leaders in open syndicated loans, are being subjected to VAT contrary to EU law. Germany now has two months to respond and address the shortcomings raised by the Commission. In the absence of a satisfactory response, the Commission may decide to issue a reasoned opinion.

Read the European Commission notice here

Other issues we have recently covered

Payments in settlement of regulatory breaches
The Supreme Court in ScottishPower v HMRC [2026] UKSC 35 has held that payments by Scottish Power pursuant to agreements with regulators in settlement of various regulatory investigations into matters such as mis-selling, complaints handling and costs transparency were not deductible for corporation tax purposes. The Supreme Court has held that the reason that penalties are not deductible is not (as the Court of Appeal considered) due to some broader judge-made principle that penalties are not deductible as a matter of public policy, but simply because they are not made wholly and exclusively for the purposes of the trade.

Duty to correct to return errors
As part of its L-day publication of draft legislation for the Finance Bill 2026/27, HMRC published draft legislation (together with supporting material) for the introduction of a new taxpayer obligation to correct errors on tax returns. The consequences of failing to take reasonable steps to correct discovered errors will be that those errors will then be treated as "deliberate" with significantly more punitive sanctions. The accompanying materials do not, at this stage, give an intended date for introduction of these rules.

Meaning of “security” for tax purposes
The decision in The Nigel Blackwell Family Trust v HMRC [2026] UKFTT 1361 concerns the use of expert evidence in the FTT. However, the underlying question, whether a particular loan agreement was a “security” for tax purposes and the approach of the FTT to the question whether expert evidence should be allowed to assist in the determination of that question is revealing. The FTT held that even though expert evidence on marketability might provide some assistance, it should nevertheless be refused as it was not reasonably required to determine the proceedings. The legal question was whether the loan agreement was a “security”. That question was to be determined by considering the terms of the loan, the surrounding circumstances and factual evidence available. The taxpayer’s approach risked elevating one evidential consideration (“marketability”) into a separate issue requiring expert determination, when the question was simply whether the loan possessed the characteristics which, viewed objectively and in its commercial context, gave it the character of a security.

Non-cooperative jurisdiction list updated
On 9 October 2026, EU Finance Ministers meeting at the Economic and Financial Affairs Council (ECOFIN) approved further changes to the EU list of non-cooperative jurisdictions for tax purposes, removing Panama and Vietnam from the black list and moving them to the grey list in recognition of progress made on their commitments. The "black" list (Annex I) now contains eight jurisdictions: American Samoa, Anguilla, Guam, Palau, the Russian Federation, Turks and Caicos Islands, the US Virgin Islands and Vanuatu.

Hotel costs as deductible travel expenses
The Upper Tribunal has held that the cost of hotel accommodation provided by British Airways to flight crew between two legs of a “back-to-back” transatlantic rotation at Heathrow was deductible as a travel expense under ITEPA 2003 s.337: HMRC v British Airways PLC [2026] UKUT 366. The UT rejected HMRC’s arguments that the expenditure was not “in the performance” of the duties and simply to put the cabin crew in a position to perform their core or operational duties.

Parent-Subsidiary Directive: interpretation of anti-abuse measures
The European Court has given a wide interpretation to the reach of the anti-abuse provisions of the Parent-Subsidiary Directive in NEO Group UAB (Case C 203/25) concluding that they can apply even in circumstances where the parent company in receipt of the carries on genuine economic activities, is recognised as the beneficial owner of the dividends and is not a conduit company. Moreover, the Court has held that tax authorities may take into account transactions carried out in other jurisdictions, including transactions further up the chain that the dividend payment is part of and advantages obtained by other participants in the chain, including the ultimate beneficial owner, whether or not the dividend paying company is aware of the non-genuine nature of the arrangements.

Luxembourg Budget 2027
This publication summarises the main tax measures introduced under Luxembourg's Draft Budget Law 2027 and reviews the proposed employee stock option regime.

UAE replaces its corporate tax exemption application decision
The Federal Tax Authority has extended the exemption application window for certain categories of taxpayer to 90 Business Days and introduced retrospective exemption application routes, with key deadlines falling in October and December 2026.

Amendments to the UAE electronic invoicing system decision
New Ministerial Decision (MD) No. 197 of 2026 has been issued on 19 October 2026, amending MD No. 243 of 2025 on the Electronic Invoicing System with effect from 1 October 2026. The MD updates a number of features of the UAE’s electronic invoicing framework, which becomes mandatory for large businesses with effect from 1 January 2027. The changes provide for a number of welcome easements to the rules and businesses currently adopting processes to be compliant should take into account these amendments in their planning.

UAE Crypto-asset reporting framework readiness circular
In October 2026, the UAE Ministry of Finance issued the Crypto-Asset Reporting Framework (CARF) Readiness Circular as a call to action. The Circular reiterates that UAE is on track to implement CARF with effect from 1 January 2027 and provides an overview of the key implications for affected businesses together with implementation milestones to be met by 31 December 2026.