V@ update - August 2025

Welcome to the August 2025 edition of RPC's VAT update, your monthly source for news and insightful analysis from the world of VAT. We've refreshed the update to make it more digestible and help you find the most interesting updates – faster and with less hassle.

News

• HMRC has updated its list of VAT appeals which it has lost or partly lost which could have implications for other businesses. This includes four new additions in the latest update. 

HMRC's list can be viewed here. 

• HMRC interest rates for late payments has been revised following the Bank of England's recent interest rate cut to 4%.

HMRC's update can be viewed here. 

• HMRC has updated its guidance on reclaiming a repayment of import duty that has been repaid. HMRC has clarified that individuals will need an EORI number from the importer or their agent when completing the C285 online form to do this.

HMRC's guidance can be viewed here.

Case reports

United Carpets (Franchisor) Ltd v HMRC [2025] UKFTT 895 (TC)

The First‑tier Tribunal (FTT) considered whether United Carpets (Franchisor) Ltd's (UC) arrangements constituted a single composite supply of flooring and fitting services, or two separate supplies of goods (flooring) by UC, and services (fitting) by independent fitters.

In allowing UC's appeal, the FTT considered the economic realities, contractual documents, and legal relationships and concluded that there were three distinct agreements: one between UC and the customer, one between UC and the fitters, and one between the fitters and the customer. The independent fitters retained full control over their tools, charges, scheduling, and liability, and customers paid them directly. On this basis, the FTT concluded that there were separate supplies, not a single composite supply.

UC also raised a public law argument, claiming it had a legitimate expectation that HMRC would not pursue retrospective VAT assessments, based on communications it had had with HMRC during HMRC's enquiry. In the view of the FTT, any indication from HMRC was qualified, and merely indicated that HMRC would take no further action at that time, which was not sufficiently clear or unambiguous to give rise to a legitimate expectation. As a result, the FTT allowed the appeal on the supply issue and declined to quash the assessments on legitimate expectation grounds.

The decision can be viewed here.

Why it matters:

This case reemphasises the importance of undertaking a proper analysis of the factual position when conducting litigation. HMRC seemingly failed to do this in this instance and disregarded the economic reality and as a consequence UC's appeal was successful.

Elphysic Ltd & Ors v HMRC [2025] UKUT 236 (TCC)

This appeal concerned “mini‑umbrella companies” (MUCs). HMRC deregistered the appellants from VAT and denied their use of the VAT Flat Rate Scheme (FRS) and Employment Allowance (EA), having concluded that VAT numbers were being used for fraudulent purposes in a contrived structure.

The FTT dismissed the appellants' appeal finding that they were liable to be deregistered and were not entitled to use the FRS or EA. However, the FTT concluded that HMRC could not de-register any of the appellants, in reliance on C-527/11 Valsts ienemumu dienests v Ablessio SIA (the Ablessio principle allows HMRC to deregister a company from VAT where that company has been using its VAT registration number for fraudulent purposes), unless it could be shown that the directors of the appellants knew that they were facilitating (or enabling) the fraud of another.

The appellants' appealed to the Upper Tribunal (UT) and HMRC cross-appealed in relation to the Ablessio principle.

The UT dismissed the appellants' appeal and allowed HMRC's cross-appeal. The UT said that a determination by HMRC that a VAT number will be used fraudulently can be made on the basis of the evidence, regardless of "whether or not any given person could be said to be fraudulent and whether or not any knowledge or act or omission of a particular person […] could be attributed to a MUC". The UT upheld HMRC’s VAT de-registrations and denial of FRS and EA eligibility.

The decision can be viewed here.

Why it matters:

This decision highlights the ways HMRC can challenge abusive VAT schemes, affirming that structural design and objective evidence suffice in establishing fraud, and defines the scope for deregistration and denial of tax relief without needing to prove personal blame.

The new changes being introduced from April 2026 (as outlined in the Draft Finance Bill 2026), will mean that recruitment agencies will be responsible for ensuring that the correct tax is paid on workers' wages when using umbrella companies.

H Ripley & Co Ltd v HMRC [2025] UKUT 210 (TCC)

H Ripley & Co Ltd (HR) exported scrap metal to a VAT registered buyer in Belgium in 2016, claiming zero‑rating under VAT Notice 725, on the basis that the goods were removed from the UK. HMRC challenged these claims in 2017, on the basis that HR had not provided sufficient evidence of removal within the strict three‑month timeframe set out in VAT Notice 725. HR presented a range of documents including sale invoices, bank statements, weighbridge tickets, CMR consignment notes, AnnexVII forms, ferry boarding passes, emails, and WhatsApp messages.

HR appealed to the FTT.

The FTT dismissed HR's appeal. It was of the view that the evidence provided by HR to HMRC was deficient, particularly as key documents were incomplete, contained inaccuracies, or were obtained after the statutory period.

HR appealed to the UT.

The UT dismissed HR's appeal and upheld the FTT’s findings, emphasising that there were significant gaps in the documents that did not support that the goods were exported and HR had failed to provide valid proof within three months of supply, as required under VAT Notice 725. The UT concluded that the imported documents failed to meet the evidential threshold as the ferry boarding cards were produced too late and could not be matched to specific shipments and the CMRs and Annex VII forms were deficient. HR therefore failed to satisfy the conditions for zero-rating and HMRC’s assessments were upheld.

The decision can be viewed here.

Why it matters:

This case reinforces the strict evidential and timing requirements under VAT Notice 725 and underscores the necessity for contemporaneous, complete documentation to support zero‑rated exports.