VAT update September 2026

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

News

HMRC publishes new guidance on VAT liability of supplies of education by alternative providers

HMRC has published Revenue and Customs Brief 9 (2026), which provides an update on HMRC's position on the VAT treatment of supplies of education and closely related services provided by alternative providers.

The Court of Appeal's recent decision in St Patrick’s International College and Others Ltd v HMRC [2026] EWCA Civ 85, contradicts HMRC's view that the provision of educational or vocational training is only exempt from VAT if it is provided by an "eligible body".

HMRC has confirmed that its view remains unchanged and it has received permission to appeal to the Supreme Court.

View HMRC's Brief 9 (2026) on the VAT liability of supplies of education by alternative providers of higher and further education.

HMRC publishes new guidance on UK VAT refunds for non-UK businesses in a VAT group

HMRC has published a brief to explain changes to how non-UK businesses that are members of a VAT group can claim refunds of UK VAT.

Since 1 January 2021, all non-UK businesses that were members of a VAT group were required to submit claims through the group's representative member. This meant that some businesses that incurred VAT were not able to claim a refund.

HMRC's policy has now changed. All non-UK businesses of a VAT group must submit their own claim for any UK VAT they incur. HMRC will no longer accept claims from a representative member, unless that representative member incurred the VAT.

As a transitional measure, HMRC will continue to accept claims for VAT incurred from 1 July 2025 to 30 June 2026 from the representative member, but only until 31 December 2026.

View HMRC's policy paper on UK VAT refunds for non-UK businesses in a VAT group.

HMRC publishes new guidance on VAT relating to fund management services

HMRC has published a new recommended approach for businesses to determine the VAT treatment of outsourced fund management services, including whether services should be treated as single or multiple supplies.

The guidance provides a list of indicators to be applied to each supply and an explanation as to why HMRC considers each one to suggest either a single supply or multiple supplies, for VAT purposes.

View HMRC's guidance on VAT on fund management services – GfC20.

Case reports

Findings on knowledge of VAT fraud upheld by Upper Tribunal

In Eurolaser IT Ltd v HMRC [2026] UKUT 324 (TCC), the Upper Tribunal (UT) considered whether the First-tier Tribunal (FTT) had erred in finding that a consultant engaged by Eurolaser IT Ltd (Eurolaser) knew, or should have known, that transactions undertaken by Eurolaser were connected with fraudulent evasion of VAT.

HMRC had denied Eurolaser's entitlement to input tax deductions and zero-rating of intra-community supplies under the principles established in Kittel and Mecsek. HMRC's case focused on Moshin Darr, a self-employed consultant engaged by Eurolaser, whose knowledge HMRC argued was attributable to Eurolaser.

The FTT had found that Mr Darr knew, or should have known, that the transactions were connected with VAT fraud. In reaching that conclusion, it considered the characteristics of the transactions, including their structure, repeated trading patterns and similarities with transactions in which Mr Darr had previously been involved (which were found to be fraudulent). The FTT concluded that Mr Darr's knowledge was attributable to Eurolaser.

Eurolaser appealed, arguing that the FTT had made findings which were not supported by the evidence and had placed too much weight on Mr Darr's previous involvement in transactions connected with VAT fraud.

The UT dismissed the appeal. It found that the FTT's conclusions were reasonably open to it on the evidence before it and that there was no material error of law. The UT also confirmed that the FTT was entitled to take Mr Darr's previous experience into account when assessing what he knew, or should have known, about the later transactions.

View the decision in Eurolaser IT Ltd v HMRC [2026] UKUT 324 (TCC).

Why it matters

The decision highlights the difficulty of challenging factual findings in VAT fraud cases on appeal. It also demonstrates the importance of considering the cumulative effect of transaction characteristics and an individual's previous experience when assessing whether a taxpayer knew, or should have known, of a connection with VAT fraud.

FTT allows input tax recovery on hypercar

In Luxurico Ltd v HMRC [2026] UKFTT 1252, the FTT allowed the taxpayer's appeal against HMRC’s decision that input tax incurred on the acquisition/importation of a motor car was denied under Article 7(1) of the Value Added Tax (Input Tax) Order 1992 (SI 1992/3222) (the Input Tax Order).

Input VAT incurred on the acquisition or importation of a motor car is generally blocked from recovery under Article 7(1) of the Input Tax Order. That restriction does not apply, however, where the vehicle is intended to be used primarily for a “relevant purpose” (Article 7(2E)), including making it available for self‑drive hire or hiring it out with a driver to carry passengers (Article 7(2F)). The issue for the FTT was whether Luxurico Ltd (Luxurico) had proved, on the balance of probabilities, that at the time of acquisition/importation in November 2020, it objectively intended the vehicle to be used primarily for such qualifying hire.

HMRC relied on the limited evidence of hiring activity in the period following acquisition, as well as social media content and mileage information, which it argued suggested significant private use. Luxurico’s case was that the social media material was marketing and that there were good reasons (including Covid-19 disruption, an accident, and repairs/testing issues) why the vehicle was not available for hire for periods after acquisition.

The FTT noted that subsequent use may be evidence of intention, but the essential question is the taxpayer’s objectively ascertainable intention at the time the input tax is incurred. On the evidence as a whole, the FTT placed weight on Luxurico being an established operator in the sector, alongside evidence of commercial interest/advance bookings before the car arrived in the UK, that the car was insured for self-drive hire on arrival, and that it was actively marketed for hire. Although the FTT found the mileage records inconsistent and incomplete, it accepted other evidence and explanations for the low hire levels. The FTT concluded that Luxurico had discharged the burden of proof and that the Article 7(1) input tax block did not apply.

View the decision in Luxurico Ltd v HMRC [2026] UKFTT 1252.

Why it matters

The decision highlights that Article 7, Input Tax Order “motor car” disputes will turn on the taxpayer’s objectively assessed intention at the time of acquisition/importation, with later use relevant only as evidence of that intention. It also underlines the importance of contemporaneous evidence supporting intended qualifying hire use (for example, booking enquiries, insurance position and marketing activity). While Luxurico succeeded notwithstanding incomplete mileage records, the case is a reminder that in cases of this nature complete and consistent mileage/hire records will often be critical, particularly where HMRC allege private use.

FTT finds no supply of staff under outsourced payroll arrangements

In Its Plant-Tech Ltd v HMRC [2026] UKFTT 1299 (TC), the FTT considered whether ITS Plant-Tech Limited (ITS) was entitled to recover input VAT charged by payroll companies on amounts representing employees’ wages and employers’ National Insurance contributions.

ITS had outsourced its payroll function to companies which invoiced it for wages, employers’ National Insurance contributions and a processing fee, plus VAT. ITS claimed the VAT as input tax on the basis that the payroll companies had employed the workers and supplied their labour back to it.

HMRC argued that the workers had remained employees of ITS and that the payroll companies had supplied payroll administration services only. It therefore denied recovery of the VAT attributable to the wage and National Insurance amounts.

The FTT found that the practical employment relationship had not changed. ITS retained day-to-day control over the workers, continued to treat them as its employees in its accounts and dealt with matters including their work and training. There was also no evidence that their employment contracts had been transferred to the payroll companies.

The FTT concluded that the workers had remained employees of ITS and that the payroll companies had provided payroll administration services, rather than supplies of staff. The VAT charged on the wage and National Insurance amounts was therefore not deductible input tax and the appeal was dismissed.

View the decision in Its Plant-Tech Ltd v HMRC [2026] UKFTT 1299 (TC)

Why it matters

The decision highlights the importance of looking at the substance of outsourced payroll arrangements when determining the nature of a VAT supply. The fact that payroll companies assumed responsibility for paying workers and operating PAYE was not, in itself, sufficient to establish that they had become the workers’ employers or were supplying their labour.