VAT update May 2026

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

News

HMRC publishes new brief on the VAT treatment of public electric vehicle charge points

HMRC has confirmed that its position remains that charging electric vehicles at public charge points is standard rated for VAT.

This is notwithstanding the recent ruling against HMRC in Charge My Street Ltd v HMRC [2026] UKFTT 318 (TC), which HMRC has confirmed it is seeking to appeal.

HMRC's brief can be viewed here.

HMRC updates its Guidance on import VAT certificates

HMRC has updated its Guidance on import VAT certificates (C79). The certificates are available online every month, usually by the tenth working day in respect of the preceding month.

HMRC's updated Guidance can be viewed here.

HMRC updates VAT Notice 701/40 on food processing services

HMRC has confirmed that, as of 1 April 2022, its considers that levies charged by the Agriculture and Horticulture Development Board fall outside the scope of VAT.

HMRC's updated Guidance can be viewed here.

HMRC updates VAT Notice 700/57 on administrative agreements with trade bodies

HMRC has confirmed that, as of 1 April 2022, it considers that levies invoiced by the Meat and Livestock Commission, from operators of slaughterhouses and exporters of live animals, fall outside the scope of VAT.

HMRC's updated Guidance can be viewed here.

Case reports

FTT rules that giant marshmallows are zero-rated for VAT

In Innovative Bites Ltd v HMRC [2026] UKFTT 500 (TC), the First-tier Tribunal (FTT) allowed the appellant's appeal finding that 'Mega Marshmallows' are not confectionary, for the purposes of Note 5, Group 1, Schedule 8, Value Added Tax Act 1994 (VATA) and are therefore zero-rated for VAT.

The key question in dispute was whether Mega Marshmallows are sweetened prepared food which is "normally eaten with the fingers". This issue for determination was identified by the Court of Appeal in HMRC v Innovative Bites Ltd [2025] EWCA Civ 293, following which the case was remitted back to the FTT, to address that question.

Following the remittal, the FTT ruled that "normally" requires that the Mega Marshmallows are eaten more often than not with the fingers, mirroring the standard of proof in civil law.

On the evidence, the FTT identified four ways that the Mega Marshmallows could be consumed: (1) roasted and eaten off a skewer; (2) roasted, removed, cooled and eaten with fingers; (3) roasted and eaten as a s’more (between biscuits with chocolate); and (4) eaten unroasted straight from the bag.

As part of its analysis the FTT considered that:

1. Methods (1) and (3) are not eaten with the fingers.
2. Methods (2) and (4) are eaten with the fingers.
3. S’mores are not eaten with the fingers because consumers hold the biscuits, which act as implements; alternatively, the marshmallow is merely an ingredient in the s’more.
4. The Mega Marshmallows are eaten more often by method (1) than method (2) noting that, once roasted the marshmallow becomes largely liquid within the caramelised outer skin and loses the structural rigidity needed to be held in the fingers, making it more likely that the product would be eaten from the skewer after roasting (as the skewer will hold the product together and make it easier to eat).
5. 'Mega Marshmallows' would be eaten more often as part of a s'more (method (3)) than straight out of the pack (method (4)). In reaching this conclusion, the FTT commented that a giant marshmallow is typically double the size of a regular marshmallow, which is what makes it suitable as an ingredient of a s’more. A consumer who wants to eat marshmallows as a sweet snack is likely to purchase regular rather than giant marshmallows.

The FTT therefore concluded that the product is typically eaten by methods other than being held in the fingers and was zero-rated.

The decision can be viewed here.

Why it matters

This decision illustrates how classifications can turn on how consumers typically eat a product, as well as how the product is marketed. It will be interesting to see whether the FTT's approach, which considered whether Mega Marshmallows are normally eaten with the fingers, without direct evidence in relation to the frequency of consumption, will be challenged by HMRC on appeal.

FTT considers the Kittel principle

In Sweetmotion Ltd v HMRC [2026] UKFTT 657 (TC), the FTT partially allowed the appellant's appeal against the denial of input VAT and penalties. HMRC denied input tax of c.£1.28m in relation to the accounting periods from March 2020 to June 2021, and issued an associated penalty of c.£386k, first to the company and later to Mr Paul Jenkins as director of the company, under section 69D, VATA.

HMRC relied on Axel Kittel v Belgian State (C-439/04) and Belgian State v Recolta Recycling SPRL (C440/04), in which the court confirmed that where a taxable person knew, or should have known, that it was participating in a transaction connected with fraudulent evasion of VAT, that taxable person's right to deduct input tax should be refused. 

The company accepted that the transactions were part of an orchestrated scheme to defraud HMRC and that there had been fraudulent tax loss. The key issue for the FTT to determine, under the Kittel principle, was whether Mr Jenkins knew, or ought to have known, that the transactions in issue were connected with the fraudulent evasion of VAT.

The FTT concluded that:

1. Mr Jenkins did not know that the company’s transactions were connected with VAT fraud, accepting that he was “someone of high integrity and someone who would not knowingly proceed with anything if he thought it was incorrect, improper, or non-compliant”.
2. Following a meeting with HMRC on 19 January 2021, during which some of the hallmarks of missing trader fraud were discussed, Mr Jenkins should have been aware of the fraud from this date. Notably, the FTT criticised HMRC's conduct in relation to their investigation for not promptly raising issues with the company once it knew who the suppliers were.
3. Since the denial of input tax applied from a certain date, this also reduced the amount of the penalty.
4. The penalties should be mitigated by 25% on the basis of the clear cooperation given by the appellant and Mr Jenkins.

The FTT therefore denied the appellant input VAT from 19 January 2021 and HMRC were required to recalculate the penalty.

The decision can be viewed here.

Why it matters

This decision confirms that the application of the Kittel principle, particularly in relation to the knowledge held by a taxpayer, is a highly fact-sensitive exercise which can lead to an apportionment of the input tax claimed. In this case HMRC's involvement with the appellant was significant and was a factor in the FTT determining the knowledge of the taxpayer. 

FTT dismisses HMRC's strike out application

In British Institute of Technology Ltd v HMRC [2026] UKFTT 00651 (TC), the FTT dismissed HMRC’s application, under Rule 8(3)(c) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, to strike out the appellant's appeal against a VAT assessment.

The appeal concerned a £587,000 input tax claim relating to the purchase of a property in Forest Gate and a penalty for alleged deliberate and concealed inaccuracies in a VAT return. HMRC rejected the input tax claim on the basis that the purchaser was not the appellant but rather Dr Muhammad Farmer, a director of the appellant.

The appellant's initial appeal against HMRC's refusal to allow the input tax claim was struck out because the appellant had failed to pay the assessed VAT and had not applied for the appeal to proceed on the basis that paying VAT would cause it hardship. The appellant then claimed the input tax on a VAT return for a later VAT return period, more than four years after the transaction took place. In response, HMRC issued a different assessment and a penalty.

The FTT criticised the appellant for failing to pursue the first appeal and warned that a second appeal could be considered an abuse of process where the appellant is seeking to re-litigate what is, in substance, the same issue raised in the first appeal. However, the FTT decided that, in the present case, the appeal was in fact a different assessment and was not persuaded by HMRC that the current appeal should be struck out because the appellant had failed to pursue the first appeal.

The decision can be viewed here.

Why it matters

The appellant in this case can consider itself fortunate given that the FTT accepted that a second appeal that seeks to re-litigate what is, in substance, the same issue, could be an abuse of process. It did not reach that conclusion in the present case because there had not been any substantive decision on the merits of the previous appeal.