VAT update February 2026

Welcome to the February 2026 edition of RPC's VAT update, your monthly source for news and insightful analysis from the world of VAT.

News

HMRC updates its Guidance on VAT and private school fees

HMRC has updated its Guidance on charging and reclaiming VAT on goods and services related to private school fees. The update provides some clarity on the example given of parents contracting and paying therapists directly and the example of a school supplying education and therapy as separate fees.

HMRC's Guidance can be viewed here.

HMRC updates VAT Notice 703 on zero-rating goods exported from the UK

HMRC has updated its Guidance on VAT on goods exported from the UK (VAT Notice 703). HMRC explain in its updated Guidance how and when you can apply zero-rated VAT to exported goods. The update addresses the latest force of law and customs processes, including the removal of outdated customs terminology and guidance.

HMRC's Guidance can be viewed here.

HMRC revises its internal manual: VAT Government and Public Services

HMRC has updated its internal manual: VAT Government and Public Bodies, in relation to NHS capital building projects. The manual sets out the established process and HMRC's requirements when a taxpayer applies for Contracted Out Services VAT recovery.

HMRC's updated manual can be viewed here.

Case reports

FTT allows input VAT recovery where invoice defects were minor and HMRC’s refusal to exercise discretion was unreasonable

In Athena Luxe Ltd v HMRC [2025] UKFTT 1507 (TC), the First-tier Tribunal (FTT) considered whether Athena Luxe Ltd (Athena) was entitled to recover input VAT on purchases from Harrods and Louis Vuitton. HMRC had reduced Athena's repayment claims on the basis that the invoices were not valid under Regulation 14, VAT Regulations 1995 (VAT Regulations).

HMRC refused recovery on the grounds that the Harrods invoices did not contain a sufficient description of the goods and the Louis Vuitton invoices were addressed to employees, rather than to Athena.

The key issues before the FTT were whether the Harrods documents satisfied Regulation 14(1)(g), VAT Regulations, and whether, in relation to the Louis Vuitton invoices, HMRC had unreasonably refused to exercise its discretion, under Regulation 29, VAT Regulations, to accept alternative evidence.

The FTT held that the Harrods invoices, read together with the corresponding till receipts, contained a description sufficient to identify the goods supplied and were therefore valid invoices for the purposes of Regulation 14(1)(g). In relation to the Louis Vuitton invoices, although they were not compliant, in the view of the FTT, HMRC had acted unreasonably in refusing to exercise its discretion under Regulation 29, particularly given that supplies were not disputed, payment by the business was evidenced, and there was no basis for concluding there had been a “systematic failure” to obtain valid invoices.

The FTT allowed Althena's appeal.

The decision can be viewed here.

Why it matters

This decision provides helpful guidance on the evidence businesses are required to submit to HMRC when claiming input tax.

The decision also confirms that HMRC’s discretion under Regulation 29, VAT Regulations, must be exercised rationally and consistently. Minor invoice defects will not automatically justify denial of input tax where the underlying supplies and payment are clearly evidenced.

FTT holds that personalised biography service was a zero-rated supply of books, not standard-rated ghost-writing services

In Story Terrace Ltd v HMRC [2025] UKFTT 1554 (TC), the FTT considered whether Story Terrace Ltd (Story Terrace) was entitled to zero-rate its supplies of personalised biography books under Item 1, Group 3, Schedule 8, Value Added Tax Act 1994 (VATA 1994).

HMRC assessed VAT on the basis that the supplies were standard-rated, arguing that Story Terrace was predominantly supplying ghost-writing services, rather than books.

The key issue before the FTT was whether Story Terrace’s overall supply, viewed from the perspective of the typical consumer, was properly characterised as a supply of books (zero-rated) or as a supply of ghost-writing services (standard-rated).

The FTT held that the final product clearly met the definition of a book and that the supply was a single composite supply. From the perspective of the typical consumer, the predominant element was the provision of a finished physical book. The ghost-writing and editorial work formed part of the process leading to that outcome. The FTT considered the contractual documentation and concluded that the provision of a book was the predominant element of the supply. The FTT also cautioned against artificially dissecting the supply into separate service elements.

The FTT allowed Story Terrace's appeal.

The decision can be viewed here.

Why it matters

This decision provides useful guidance on applying the predominance test to bespoke creative products. It confirms that a highly personalised, and service-intensive process, can still amount to a zero-rated supply of goods where, viewed objectively, the typical consumer is acquiring a product that, properly characterised, satisfies the legal test for a zero-rated product. The case is likely to be relevant to other hybrid publishing, design and creative service, models.

UT clarifies scope of “disability” for VAT zero-rating in hair replacement case

In Mark Glenn Ltd v HMRC [2026] UKUT 34 (TCC), the Upper Tribunal (UT) considered whether Mark Glenn Ltd (MGL) was entitled to zero-rate supplies of its Kinsey system, a hair replacement treatment for women with severe hair loss, under Item 3, Group 12, Schedule 8, VATA 1994.

HMRC assessed VAT on the basis that the supplies were standard-rated, arguing that severe female hair loss was not a “disability” and that the supply was not a service of adapting goods.

The key issues before the UT were whether: (i) severe female hair loss constituted a disability for VAT purposes; and (ii) the Kinsey system fell within Item 3, as a supply of services of adapting goods to suit a disabled person’s condition.

The UT held that the FTT had erred in law by failing adequately to explain why female baldness was not a disability. Remaking the decision, the UT concluded that severe hair loss in women can constitute a disability, taking into account the real-world social and cultural impact of severe hair loss.

The UT further held that, although the overall supply was a single supply of services, it involved adapting goods (the hairpiece and fibre strands) to suit the person’s condition. The supplies therefore fell within Item 3 and were zero-rated.

The UT allowed MGL’s appeal.

The decision can be viewed here.

Why it matters

This decision is significant in the context of the scope of “disability” and Item 3 zero-rating. It confirms that disability can be assessed by reference to social context and real-world impact, and that a composite service can qualify as a service of adapting goods.