VAT update October 2026

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

News

HMRC publishes guidance on using form VAT2 to provide or update partnership details for VAT

HMRC has published guidance on using form VAT2. This explains when form VAT2 is to be used.

Form VAT2 should be used to provide details of partners when a partnership registers for VAT, to update partner details, to add or remove partners, and to confirm that the partners agree to a change to the partnership’s bank account.

View HMRC's guidance on providing or updating your partnership details for VAT.

HMRC publishes guidance on VAT treatment of cryptoassets

HMRC has published guidance for UK and overseas businesses involved in cryptoasset transactions where UK VAT may apply.

The guidance explains what businesses need to consider when deciding how VAT may apply to their cryptoasset activities, including whether they need to register for VAT and what VAT obligations they may have.

View HMRC's guidance on help with VAT treatment of cryptoassets.

HMRC updates guidance on VAT refunds for constructing a new charity building

HMRC has updated the 'Claims rejected or not paid in full' section of its guidance which explains what taxpayers should do if they think HMRC has missed key information or misunderstood something in their claim.

The guidance explains when a claim for a VAT refund can be made using the DIY housebuilders scheme when constructing a new building for a charitable or relevant residential purpose.

View HMRC's guidance on VAT refunds for constructing a new charity building.

Case reports

FTT allows partial input tax recovery by holding company

In Victoria Oil & Gas plc v HMRC [2026] UKFTT 1246 (TC), the First-tier Tribunal (FTT) considered whether Victoria Oil & Gas plc (VOG) was entitled to recover input VAT on costs incurred in managing its subsidiaries and supporting its oil and gas business.

VOG appealed against HMRC assessments in the sum of £884,049, which restricted its input VAT recovery to 12%.

VOG provided management and administrative services to its Cameroonian subsidiary, Gaz du Cameroun (GdC), but also incurred costs supporting other group subsidiaries without consideration.

The FTT rejected VOG’s argument that HMRC’s assessments had not been made to 'best judgment'. In the FTT's view, HMRC had made a genuine and reasonable attempt to assess the available evidence using VOG’s own invoices and staff-time analyses.

However, the FTT allowed the appeal in part, finding that input VAT on costs recharged to GdC and litigation and dispute-resolution costs connected with GdC’s business was recoverable, as those costs had a direct and immediate link to VOG’s taxable supplies to GdC. In contrast, input VAT in connection with certain other litigation and general corporate head office and legal costs was not recoverable, as the necessary link to VOG’s taxable supplies had not been established.

The FTT also rejected VOG’s argument that its entire business was taxable. VOG had not established that it made, or intended to make, supplies for consideration to subsidiaries other than GdC. The appeal was allowed in part, with the consequential reduction in the assessments left to be agreed between the parties or, failing that, to be determined by the FTT upon further application by the parties.

View the decision in Victoria Oil & Gas plc v HMRC [2026] UKFTT 1246 (TC).

Why it matters

This decision highlights the importance of establishing a direct and immediate link between expenditure and taxable supplies when recovering input VAT. Holding companies should ensure that intra-group services, recharges and associated costs are properly documented. It also demonstrates that HMRC’s 'best judgment' assessments are to be judged by reference to the information available at the time, rather than whether a more accurate calculation can subsequently be produced.

FTT finds collagen drinks are not zero-rated food

In Minerva Research Labs Ltd v HMRC [2026] UKFTT 1320 (TC), the FTT considered whether collagen-based drinks sold by Minerva Research Labs Ltd (Minerva) were "food of a kind used for human consumption", and so zero-rated under Item 1, Group 1, Schedule 8, Value Added Tax Act 1994 (VATA 1994).

Minerva had accounted for VAT on its products at the standard rate. It claimed repayment of overdeclared output VAT of approximately £3.6 million (periods 04/18 to 01/22), arguing that the products were zero-rated food. HMRC refused the claim on the basis that the products were predominantly held out for sale as health and beauty supplements. Minerva appealed.

It was common ground before the FTT that the products were not excluded from zero-rating as "beverages" and therefore the sole issue to be determined was whether the products were food.

The FTT dismissed the appeal. It applied a multi-factorial test, treating the question as a practical one of fact and degree. Following Fluff Ltd v C&E Commrs [2001] STC 674 and The Core (Swindon) Ltd [2020] UKUT 301 (TCC), it placed significant weight on how the products were held out for sale and why customers bought them. In support of Minerva, the products were nutritious (providing 6–23% of daily protein requirements, together with some energy, vitamins and minerals) and were held out as nourishing the body. Some weight was also given to the historic consumption of collagen in bone broth and gelatine, and to the products' palatability.

However, these factors were outweighed by the products being marketed as "liquid beauty supplements", customers buying them for cosmetic and anti-ageing reasons rather than for protein or energy (which are available much more cheaply elsewhere), and on the basis that the products were not marketed as a meal or snack replacement. The use of medicinal language such as "dose" and "treatment", and precautionary warnings on the packaging (for example, to consult a doctor if pregnant or on medication), also pointed away from food.

The FTT held that being edible and nutritious was not enough. Following Fluff, it reasoned that if it were, Parliament would simply have specified "edible material for humans" rather than setting out distinct categories in Group 1.

View the decision in Minerva Research Labs Ltd v HMRC [2026] UKFTT 1320 (TC).

Why it matters

This decision confirms that a product can be edible and nutritious but still fall outside zero-rating, depending on how it is marketed and why customers buy it. Businesses selling supplements or "functional" food and drink should consider how their products are positioned, including packaging language, the sales outlets used and any medicinal terminology, as these can carry significant weight in a classification dispute.

FTT allows appeal against VAT registration where HMRC could not support its turnover figures

In Shahid Hussain v HMRC [2026] UKFTT 1223 (TC), the FTT considered an appeal by Mr Hussain against HMRC's decision to register him for VAT with effect from 1 October 2017.

Mr Hussain ran a takeaway in Dumbarton. HMRC visited the premises in 2016 and 2017, but Mr Hussain declined to allow an inspection and did not provide the business records HMRC requested. HMRC therefore decided to register him for VAT with effect from 1 October 2017, on the basis that he had run the takeaway as a sole trader since April 2013 with a turnover of £382,032 over that period. It issued VAT assessments of £32,579 under section 73(1), VATA 1994, and imposed penalties of £22,805.

Mr Hussain accepted that he ran the takeaway as a sole trader until 31 January 2015. However, he argued that the business was then transferred to a company he owned, and later to a third-party company, both of which employed him. He also argued that there was no evidence the takeaway's turnover had ever exceeded the registration threshold.

The FTT found that the turnover of the takeaway was below the VAT registration threshold in each relevant period. Mr Hussain's income tax returns showed turnover of £77,957 for 2013/14 and £65,182 for 2014/15. HMRC had not enquired into those returns. Although they covered only two years, the FTT accepted them as the only contemporaneous records, and so the best available evidence of the business' turnover.

In contrast, HMRC could not justify the workings behind its turnover figures. It had taken the figures in the income tax returns, added Just Eat sales and applied a retail price index uplift. HMRC was unable to explain why the Just Eat sales should be added, or why sales from other delivery platforms appeared to have been treated differently.

The FTT acknowledged that HMRC's assessments carried a presumption of validity. However, the absence of supporting workings or a coherent explanation meant it could place no weight on HMRC's methodology. Given that conclusion, the FTT did not need to decide who carried on the business after January 2015. The registration decision, assessments and penalties were set aside.

View the decision in Shahid Hussain v HMRC [2026] UKFTT 1223 (TC).

Why it matters

This decision is a reminder that, although HMRC's assessments carry a presumption of validity, they must still be supported by reliable evidence and a coherent methodology, and HMRC suspicion alone will not be sufficient. The case highlights the value of contemporaneous records. In this instance, unchallenged income tax returns were decisive, even though the taxpayer had not cooperated with HMRC's inspection and information requests.