VAT update November 2025

Welcome to the November 2025 edition of RPC's VAT update, your monthly source for news and insightful analysis from the world of VAT.

News 

• HMRC has published a Brief 6, explaining changes in the right to input tax deduction for insurance intermediary services supplied outside the UK before 31 December 2023.

HMRC's Brief can be viewed here.

• HMRC's recorded webinar link for 'VAT on private school fees - what you need to charge and reclaim VAT for' has been updated.

  The webinar can be accessed here.

• HMRC has updated its internal manual concerning the VAT treatment of contracted out services relating to government departments and health authorities, giving practical advice in relation to VAT recovery concerning computer services systems and/or software packages.

The updated internal manual can be viewed here.

Case reports

Northumbria Healthcare NHS Foundation Trust v HMRC [2025] UKSC 37

This appeal concerned whether VAT should have been charged on the supply of car parking at hospitals. Ordinarily, VAT is charged on the supply of goods and services. However, there is an exception where a public body is supplying a service, which would otherwise be taxable, if it is ‘acting as a public authority’. A body is ‘acting as a public authority’ if it acts under a ‘special legislative regime’ (SLR). A body will be acting under an SLR when it is under different legal rules to a private operator carrying out the same activity. If the exception applies, the public body is not treated as a taxable person and so it does not have to charge VAT on its supply of the relevant goods or services. Even when this exception applies, if treating the public body as non-taxable would lead to ‘significant distortions of competition’, then the public body is restored to being taxable.

Northumbria Healthcare NHS Foundation Trust (the Trust) supplied paid-for car parking at various sites between May 2013 and March 2016. The Trust argued that it was acting under an SLR, because there was guidance from the Department of Health regarding its car parking operations in conjunction with the public law obligation to follow such guidance unless there was good reason not to. The Trust argued that this meant it was not a taxable person when it supplied car parking. Alternatively, it argued that the provision of car parking was closely linked to its functions of providing healthcare and so it was not a taxable person when it supplied car parking. On this basis, the Trust made a claim for overpaid VAT. HMRC rejected the Trust’s claim and both the First-tier Tribunal (FTT) and the Upper Tribunal (UT) dismissed the Trust’s appeal. The Court of Appeal allowed the Trust’s appeal and HMRC appealed to the Supreme Court.

The Supreme Court considered the following issues:

(1) whether NHS car-parking was performed under a SLR such that the Trust was acting as a public authority and fell within the exclusion under Article 13 of the Principal VAT Directive (PVD) and could be treated as non-taxable for VAT purposes; and

(2) whether exempting the Trust from VAT would lead to significant distortions of competition.

The Supreme Court allowed HMRC's appeal and confirmed that the Trust had to pay VAT on its hospital car parking charges because it was not acting as a public authority when providing car parking. The Court said that the guidance relied upon by the Trust did not constitute a legally binding regime with the certainty required to qualify as a SLR. Guidance, even externally issued, did not create enforceable obligations as it could be departed from and amended.

The Court was also of the view that even if the Trust had qualified as a SLR, exempting the Trust from VAT would have resulted in more than negligible distortions of competition. Evidence showed that VAT-free treatment would either allow the Trust to undercut its competitors or enable it to retain higher profits, both of which would constitute distortions of competition.

Why it matters

This judgment has sector-wide financial implications, as around 70 similar NHS appeals were stayed behind this case, with up to £100 million of VAT in issue.

The Supreme Court has clarified the VAT position for NHS organisations providing car-parking supplies and limits the circumstances in which public bodies can rely on Article 13 PVD to avoid taxable-person status. Crucially, non-binding guidance, even when combined with public-law duties, cannot amount to a SLR. Only legally enforceable obligations with sufficient certainty can satisfy Article 13.

The judgment can be viewed here.

Eurocent (Buckingham) Ltd v HMRC [2025] UKFTT 01253 (TC)

The FTT considered whether Eurocent (Buckingham) Ltd (Eurocent) was entitled to recover input VAT on professional fees incurred in connection with the purchase of a parade of let retail units.

Eurocent had claimed input VAT in respect of two invoices: one from BHNV Development Ltd (BHNV) for £46,000 of VAT on consultancy and property-related services, and another from Colridge Ltd (Colridge) for £4,960 of VAT, described only as an 'Introduction' fee.

The appeal turned on three questions. First, whether HMRC could deny input tax even if the invoices themselves were valid. Second, whether the BHNV and Colridge invoices complied with the VAT invoice requirements. Third, if any invoice was invalid, whether HMRC acted reasonably in refusing to accept alternative evidence under Regulation 29(2), Value Added Tax Regulations 1995.

HMRC's position was that it could refuse input tax recovery under Regulation 29(2) even if valid VAT invoices existed, on the basis that no genuine taxable supplies had been made. The FTT rejected HMRC’s argument, holding that Regulation 29(2) gives HMRC discretion to accept alternative evidence where invoices are missing or defective, but it does not empower HMRC to deny input tax where valid invoices are held. The FTT found that HMRC’s decision letters and internal review had been made solely under Regulation 29(2), not under any broader power.

Accordingly, the FTT concluded that the BHNV invoice was valid: it contained sufficient detail of the services provided, and it was acceptable for the date of issue and time of supply to coincide. However, the FTT found that the Colridge invoice was invalid, as it lacked the customer’s address, and an adequate description of the services supplied. The FTT held that HMRC had not acted unreasonably in refusing to exercise its discretion under Regulation 29(2) to accept alternative evidence.

The appeal was therefore allowed in part. Input tax on the BHNV invoice was recoverable, but not on the Colridge invoice.

Why it matters

This decision confirms that Regulation 29(2) concerns evidential sufficiency, not substantive entitlement. For businesses, the case underlines the importance of ensuring invoices satisfy legal requirements in order to allow them to make appropriate claims for input tax.

The decision can be viewed here.

Illuminate Skins Clinics Ltd v HMRC [2025] UKUT 00341 (TCC)

The UT considered whether Illuminate Skin Clinics Ltd (Illuminate) was entitled to treat its cosmetic and aesthetic treatments as exempt supplies of 'medical care' for VAT purposes under Item 1, Group 7, Schedule 9, Value Added Tax Act 1994.

Illuminate operated a private clinic offering a range of aesthetic and skincare procedures, including treatments for collagen loss, excess fat, Botox and dermal fillers. Illuminate sought to recover VAT on these aesthetic treatments on the basis that they were exempt as supplies of 'medical care', arguing that many of the procedures were performed for therapeutic purposes.

The FTT had dismissed Illuminate's claim for VAT repayment, concluding that the services did not constitute 'medical care'.

Illuminate relied on four grounds of appeal, arguing that the FTT:

1. focused on 'commercial and economic reality' instead of asking itself whether the services were purely cosmetic and therefore outside the exemption (Ground 1);

2. based its decision upon its view of the purpose, or primary purpose, of Illuminate's services when the correct question was whether the treatment was purely cosmetic (Ground 2);

    

3. assessed therapeutic purpose too narrowly and misapplied the case law on what constitutes medical/therapeutic care (Ground 3); 

4. did not deal with Illuminate’s argument that HMRC was trying to impose an EU exclusion regarding cosmetic care that Parliament had not enacted into UK law (Ground 4).

The UT rejected Grounds 1 and 2, because the FTT had applied the correct legal test for the medical-care exemption, namely, identifying the principal purpose or aim of each treatment. The FTT had properly focused on whether each procedure had a therapeutic aim, and its references to 'commercial and economic reality' did not amount to an error of law.

With regard to Ground 3, the UT agreed with Illuminate that the FTT had unduly confined its assessment of therapeutic purpose by setting overly rigid evidential expectations for diagnosis. The FTT should have applied a holistic, multifactorial analysis of the evidence, considering the practitioner’s recorded diagnoses, the patient’s circumstances, the clinical context and the nature of the procedure.

The UT rejected Ground 4. The UT was of the view that there was no error of law in the FTT’s treatment of Illuminate’s 'Parliamentary intention' argument as the FTT had adequately addressed the point and applied the correct legal framework.

The appeal was therefore partly successful, with the UT setting aside the FTT’s decision in part and remitting the case to the FTT for reconsideration of the therapeutic purpose assessment, in light of its findings.

Why it matters

This decision provides important guidance on the VAT treatment of cosmetic and aesthetic medicine. It confirms that an exemption arises only where the principal purpose of a treatment is therapeutic and clarifies how the tax tribunals should determine that purpose. The UT’s emphasis on giving appropriate weight to medical diagnoses, distinguishing between cosmetic motivations and therapeutic aims, and conducting a transaction-by-transaction analysis, will influence numerous stayed appeals in the sector. It also limits the ability of HMRC to characterise aesthetic treatments as taxable without properly engaging with the medical evidence presented by qualified practitioners.

The decision can be viewed here.