Weekly VAT News

On Wednesday, 4 February, from 10:00 – 10:30, we will be hosting a webcast: The latest on e-invoicing in the UK and no regret next steps, featuring HMRC’s e-invoicing lead, Rachel Stirrat as guest speaker.

Rachel will provide an update on HMRC’s plans in the next year following the publication of the consultation responses during the UK’s Budget last November (Promoting electronic invoicing across UK businesses and the public sector). Our panellists, Chris Taylor (Indirect Tax Transformation Partner and e-invoicing lead) and Simon Swanson (Indirect Tax Transformation Senior Manager), will then delve into actionable steps businesses can take now, based on their experience assisting companies with e-invoicing regimes in other countries. Topics will include evaluating current processes, systems, and data for compliance, identifying suitable technology solutions, and how to build a business case for budget and resources. We will also look to answer any questions you may have at the end of the session.

To register for the event, please click here.

For further information, please contact Sarah Delaney.

Our next Indirect Tax Perspectives event will take place on Wednesday, 11 February. The event will take place in person at our 1 More London Place office, London, SE1 2AF. The session will run from 9:30 to 11:00, with networking and refreshments available from 8:45.

Following the main plenary sessions, we are also offering an optional session on AI indirect tax use cases which will run from 11:15 to 12:15, where we will showcase a number of AI use cases through solution demos.

During the event, we will cover:

• A round-up of the latest indirect tax topical issues
• E-invoicing update including guest speaker, HMRC’s Rachel Stirrat
• Trade Policy updates for UK businesses to monitor in 2026
• Gen AI update and indirect tax developments
• Optional session – Gen AI indirect tax use cases deep dive (11:15 to 12:15)

Following these presentations, we would be delighted if you could join us for lunch in our Forum Suite which will be available until 13:00.

Please register for the event and optional session here. There is also an option to opt into lunch; let us know if you have any dietary requirements.

For further information please contact Sarah Delaney.

Please join our webcast on 11 February 2026, 13:30 – 14:30, where we will explore indirect tax topics impacting financial services businesses across Europe.

Our panellists from across the region will discuss the latest court rulings on debt financing, new perspectives on VAT and transfer pricing – including the CJEU AG’s recent opinion in Stellantis – as well as the UK Supreme Court’s judgment in Hotel La Tour.

Please register for this event here.

For further information please contact Roshni Shah.

EY is co-hosting an in-person e-invoicing event with Edicom on 4 March, 10 – 14:30, at our 1 More London Place office, London, SE1 2AF.

The event will include:

• A plenary overview session with EY and Edicom
• A panel discussion covering key upcoming mandates such as France and the UK. (HMRC will be part of this panel to provide specific insight on the plans for the UK and answer questions)
• A client case study with Kellanova which will cover their experience in selecting and implementing an e-invoicing provider
• Roundtable discussions running concurrently covering various e-invoicing topics aligned to the attendee’s choice of subject

This event will be particularly insightful for:

• Tax, Finance, and IT Leaders seeking to deepen their understanding of forthcoming e-invoicing mandates
• Tax Transformation Leads overseeing the adoption of e-invoicing.
• Companies exploring options to consolidate their disparate e-invoicing systems and streamline compliance processes

Should you wish to attend (and for further information on how to register) please contact Ruby Buckland.

The European Commission has reported that it has concluded negotiations with India for a free trade agreement (FTA), the largest such deal ever concluded by either side. It aims to strengthen economic and political ties between the world's second and fourth largest economies.

The EU and India already trade over €180 billion worth of goods and services per year, supporting close to 800,000 EU jobs. This deal is expected to double EU goods exports to India by 2032 by eliminating or reducing tariffs in value of 96.6% of exported goods. Additionally, enhanced access to the Indian services market, particularly in financial services, maritime services and other key sectors, aims to open new business opportunities and foster job creation.

Key benefits for EU exporters under this agreement:

• Tariffs on over 90% of EU goods exports will be eliminated or reduced
• Saving up to €4 billion per year in duties on European products
• Competitive advantage for EU exporters
• Privileged access to India for EU service providers in key areas financial services and maritime services
• Simplification of customs procedures to make exports quicker and easier
• Protection of EU intellectual property such as trademarks
• A dedicated chapter for small EU businesses.

Please also refer to:

• Questions and answers on the EU-India Free Trade Agreement
• The EU-India trade agreement

In a social media post, President Trump has said that the US will increase tariffs on imports from 15% to 25% as South Korea has not yet implemented the deal reached in July 2025.

“Our Trade Deals are very important to America. In each of these Deals, we have acted swiftly to reduce our TARIFFS in line with the Transaction agreed to. We, of course, expect our Trading Partners to do the same. South Korea's Legislature is not living up to its Deal with the United States. President Lee and I reached a Great Deal for both Countries on July 30, 2025, and we reaffirmed these terms while I was in Korea on October 29, 2025. Why hasn't the Korean Legislature approved it? Because the Korean Legislature hasn't enacted our Historic Trade Agreement, which is their prerogative, I am hereby increasing South Korean TARIFFS on Autos, Lumber, Pharma, and all other Reciprocal TARIFFS, from 15% to 25%. Thank you for your attention to this matter!”

In a press release on 29 January 2026, the Prime Minister has confirmed that the UK has reached agreement with China on various matters.

A new services partnership has been agreed to allow better market access for UK business in China. China also will relax visa rules for British citizens, ending the visa requirement for travel under 30 days for business travellers and tourists. The UK and China have also agreed to conduct a feasibility study to explore whether to enter negotiations towards a bilateral services agreement.

The press release says that the following agreements were signed:

1. Co-operation on Transnational Organised Crime and Illegal Immigration
2. Establishment of a Bilateral Services Partnership
3. Joint Feasibility Study for a UK-China Trade in Services Agreement
4. Co-operation in the Field of Conformity Assessment
5. Exports from the UK to China
6. Strengthening the Work of the UK-China Joint Economic and Trade Commission
7. Co-operation in Domiciliary Services and Sports Industries
8. Collaboration in Technical and Vocational Education and Training (TVET)
9. Co-operation on Food Safety, Animal, and Plant Quarantine
10. Health Co-operation

For further information please contact Marc Bunch or Ross Freeman.

Monday 2 February

Hearing – T-268/25 Sampension Livsforsikring

Topics – VAT group eligibility – ownership requirements

This Danish referral asks whether the first paragraph of Article 11 of the VAT Directive, read in conjunction with the second paragraph thereof, is to be interpreted as precluding legislation of a Member State under which eligibility for creating a VAT group comprising persons not engaged in an activity subject to registration or not engaged in an economic activity, is subject to the condition that one person in the VAT group directly or indirectly owns 100% of the other person or persons in the VAT group. If question 1 is answered in the affirmative, does Article 11 have direct effect in the Member States, with the result that taxable persons are entitled to be registered as a VAT group in cases where the legislation of that Member State does not comply with that provision and cannot be interpreted in accordance therewith.

Wednesday 11 February

Judgment – T-643/24 Credidam

Topics – Copyright and related rights – communication to the public of protected works – supply of services

A Romanian referral which asks whether VAT is due in a situation of tortious civil liability concerning copyright and related rights. On a proper construction of Article 2(1)(c), Article 24(1), and Article 25(a) of the VAT Directive, do holders of related rights carry out a supply of services for consideration where the user carries out a communication to the public of protected works in the absence of a licence to that effect.

Judgment – T-689/24 Dyrektor Krajowej Informacji Skarbowej

Topics – Deduction of VAT without an invoice

A Polish referral which asks whether Articles 167, 168(a) and 178(a) of the VAT Directive and the principles of fiscal neutrality, effectiveness and proportionality must be interpreted as precluding a provision of national law under which a taxable person may not assert the right to deduct input tax in a return submitted for a period in which that person met the substantive conditions for exercising that right if, during that period, he or she had not yet received an invoice, even though that person did receive the invoice before submitting the return.

Wednesday 25 February

Opinion – T-184/25 Veronsaajien oikeudenvalvontayksikkö (Exonérations – gestion de crédits effectuée par celui qui les a octroyés)

Topics – VAT exemption – management of credit

A Finnish referral which asks whether Article 135(1)(b) of the VAT Directive, which concerns the exemption from tax of the management of credit by the person granting it, is to be interpreted as also covering the case where an undertaking continues to manage credit which it has itself granted and has sold to another financial institution. If the answer to the first question is in the negative and the management of credit by the former undertaking concerns credit serving to secure a bond issued by another financial institution, is Article 135(1)(c) of the VAT Directive, which concerns the exemption from tax of any dealings in credit guarantees or any other security for money, to be interpreted as also covering the case where the former undertaking manages credit serving to secure a bond issued by another financial institution. If the answer to the second question is in the negative, is Article 135(1)(d) of the VAT Directive, which concerns the exemption from tax of transactions concerning debts, to be interpreted as also covering the case where the former undertaking manages debts transferred to another financial institution.

Judgment – T-575/24 Digipolis

Topics – VAT Liability for commissioning association participants

A Belgian referral which asks whether Articles 2, 9 and 13 of the VAT Directive and the principle of neutrality are infringed if those provisions are interpreted as meaning that, by joining a commissioning association, participants who have made a conferral of management are not liable for VAT when they avail themselves of the services of the commissioning association since, in the context of the conferral of management, the latter is deemed to be acting in place of its members, with the result that services provided by the commissioning association to the participants are deemed to be services provided to itself and thus there is no participation in trade/taxable transactions.

Judgment – T-638/24 Finanzamt Österreich (Acquisition and livraison intracommunautaires – double imposition)

Topics – Acquisitions, place of supply

An Austrian referral regarding the taxation of an intra-Community acquisition of goods, within the meaning of Article 20 of the VAT Directive where the Member State in which dispatch or transport of the goods began has taxed that acquisition, pursuant to Article 41, on the ground that the customer has used the VAT identification number of that Member State and has not established that VAT has been applied to the transaction in the Member State in which the dispatch or transport ends.

Thursday 5 March

Judgment – C-409/24 J-GmbH (Application sélective du taux réduit de TVA), C-410/24 Blapp (Application sélective du taux réduit de TVA) and C-411/24 D GmbH (Application sélective du taux réduit de TVA)

Topics – Reduced tax rate for the letting of living and sleeping space – inclusion of ancillary supplies

Joined German referrals which ask whether Article 24(1) and Article 98(1) and (2) of the VAT Directive, read in conjunction with Category 12 of Annex III, are to be interpreted as meaning that they preclude a national provision under which a Member State may exclude, by means of a national requirement to break down transactions for tax purposes, supplies from the reduced tax rate provided for by the Member State for the letting of living and sleeping spaces offered by a trader for the short-term provision of accommodation, where the supplies do not directly serve the letting purpose but are remunerated by the consideration for such letting, even if those supplies are dependent supplies ancillary to the short-term provision of accommodation.

Judgment – C-436/24 Lyko Operations

Topics – Definition of ‘voucher’ for VAT purposes – instrument in the form of points

A Swedish referral which concerns the definition of ‘voucher’ for VAT purposes, in particular, whether an instrument in the form of points constitutes a voucher as defined in Article 30a of the VAT Directive, where the points are awarded under a customer loyalty programme (loyalty programme) designed in such a way that a customer who purchases goods obtains points according to the size of the purchases and is then entitled, when making a future purchase, to use the points to obtain further goods from the seller’s range. How is the taxable amount under Article 73a to be determined when the points are used to obtain goods from the seller.

• T-851/25 Roenes – A Dutch referral concerning a VAT assessment pertaining to the sale of a leased apartment complex which was originally an office building and was converted by the defendant. The referral asks whether the first paragraph of Article 19 of the 2006 VAT Directive extends to the supply of immovable property (residential apartment complex) which is used solely for an economic activity exempted under Article 135 (in this case, letting as referred to in Article 135(1)(l)), where the vendor has not enjoyed the right to deduct in respect of that immovable property and that supply is therefore already exempt under Article 136(a). If not, does the first paragraph of Article 19 extend to the supply of immovable property (residential apartment complex) where that supply is exempt under Article 135(1)(j). If the first paragraph of Article 19 extends to the supply referred to in Question 1, is it then sufficient for the application of that provision that that immovable property is let by the vendor and is supplied in its let state, such that that inseparable whole constitutes an independent economic activity within the meaning of the final sentence of Article 9(1), or must account also be taken of the intention with which the vendor developed the immovable property and began to let it after completion and the fact that the vendor began actually using it only in order to promote its sale.

Topics – Zero-rating, meaning of disabled person in the context of hair loss, services of adapting goods to suit condition

Mark Glenn Ltd

The Upper Tribunal (UT) has released its decision in this case concerning the VAT treatment of a system used to address hair loss. That system is called the Kinsey System, which is offered to women suffering from baldness (in the form of severe and patchy hair loss). The First-tier Tribunal (FTT) had previously been asked to consider whether the system qualified for zero-rating under Schedule 8, Group 12 (Drugs, medicines, aids for the disabled etc.), VATA94 or whether it should be standard-rated.

The FTT concluded that the hair replacement system did not qualify for zero-rating and dismissed Mark Glenn Ltd’s (MGL) appeal. MGL appealed to the UT on the grounds that the FTT erred in law in that its reasoning was inadequate or else otherwise flawed in various respects.

The grounds of appeal are:

• Ground 1: Failure to give reasons: The FTT did not explain why baldness in women was not a physical or mental impairment which had a long-term and substantial adverse effect on their ability to carry out everyday activities.
• Ground 2: Fiscal neutrality: The FTT erred in not properly considering that a wig being treated as zero-rated for VAT purposes, where the wig was in effect a less safe version of the Kinsey system, conflicted with the principle of fiscal neutrality.
• Ground 3: Adapting goods to suit his condition: The FTT erred in finding that the adapting of individual fibres into the mesh to specifically address the individual hair loss suffered, which was unique to each client’s hair loss, was not a supply to a disabled person of services of adapting goods to suit the disabled person’s condition.
• Ground 5: Edwards v Bairstow: The FTT’s conclusion that baldness in women was not a disability was one that no reasonable tribunal could have reached on the evidence.

Pursuant to Section 30 (Zero-rating) of VATA 1994, supplies of goods or services are zero-rated if the goods or services are of a description specified in Schedule 8. Group 12 (Drugs, medicines, aids for the disabled, etc) provides, inter alia:

• (2) the supply to a disabled person for domestic or his personal use, or to a charity for making available to disabled persons by sale or otherwise, for domestic or their personal use, of (a) medical or surgical appliances designed solely for the relief of a severe abnormality or severe injury; (g) equipment and appliances not included in paragraphs (a) to (f) designed solely for use by a disabled person; (h) parts and accessories designed solely for use in or with goods described in paragraphs (a) to (g).
• (3) The supply to a disabled person of services of adapting goods to suit his condition.
• (5) The supply to a disabled person or to a charity of a service of repair or maintenance of any goods specified in item 2, 2A, 6, 18 or 19 and supplied as described in that item.

Note (3) provides – any person who is chronically sick or disabled is ‘disabled’ for the purposes of this Group; note (4) provides – Item 2 shall not include aids (except hearing aids designed for auditory training of deaf children), dentures, spectacles and contact lenses but shall be deemed to include (a) clothing, footwear and wigs.

Ground 1: Failure to give reasons

The UT recalled that MGL argued that the FTT’s reasoning for concluding that female baldness was not a disability lacked reasoning, or at least any adequate reasoning. The FTT did not explain why medical and other evidence failed to meet the condition that significant hair loss in women was an impairment with a long-term and substantial adverse effect on their ability to carry out everyday activities. The FTT overlooked or unreasonably discounted evidence in the form of letters and NHS invoices, showing that hair loss conditions were medically treated and long-term. It did not explain why this evidence failed the impairment test. The FTT also failed to take judicial notice of the social reality – the rarity and stigma of female baldness compared to male baldness. That omission, MGL says, undermines the adequacy of reasons.

The UT recalled that ‘the duty to give reasons’ requires the decision-maker to expose reasoning sufficient to allow the parties and an appellate court to understand why the case was decided as it was. While a tribunal need not address every piece of evidence, it must confront the central submissions and key evidence that bear materially on the outcome.

The UT considered that in this respect, the FTT’s findings that significant hair loss or baldness in women is not an impairment, and in any event does not have long-term substantial adverse effects on everyday activities, were simply conclusions, not reasons. The UT suggested that whilst there is no doubt as to the FTT’s conclusion, the issue is the adequacy of the reasoning given. The FTT did not confront the central point of contention between the parties with respect to whether the severe hair loss at issue on the facts amounted to disability in and of itself.

The UT considered that the fact that hair loss can be a consequence of other conditions (or conversely that it might lead to mental conditions such as depression constituting a disability) does not, without more, answer the separate question whether the severe hair loss in women in question is, of itself, an impairment producing long-term substantial adverse effects.

While the FTT placed weight on the absence of evidence that the medical profession treats hair loss as a ‘chronic sickness’ the UT noted that MGL’s case was primarily on the ‘disability’ limb, connoting a physical impairment with a long-term substantial adverse effect. The FTT did not explain why this limb failed in light of MGL’s evidence (including NHS referral/funding, clinical narrative, and evidence of day-to-day limitations).

For these reasons, the UT concluded that Ground 1 is made out. The FTT’s reasoning for its conclusion that hair loss of the type treated with the Kinsey system in and of itself was not a disability did not constitute adequate reasoning that enabled the parties or this Tribunal to understand why MGL’s evidence did not make good the proposition that the recipients of the Kinsey system, who in each case were women who suffered from baldness (in the form of severe and patchy hair loss), were disabled as a result of such hair loss for the purposes of Item 3, Group 8, Schedule 12.

Ground 2: Fiscal Neutrality

The UT recalled that the principle of fiscal neutrality precludes treating similar goods and supplies of services, which are thus in competition with each other, differently for VAT purposes.

HMRC argued that the Kinsey system and wigs are not interchangeable for the average consumer. In agreement with HMRC, the UT considered that there was no error by the FTT, which correctly identified that while both products address hair loss, the evidence demonstrated that the Kinsey System was chosen precisely because it is different from a wig.

The UT concluded that the FTT correctly considered whether the supplies were sufficiently similar so as to require equivalent VAT treatment but found they were not. Ground 2 therefore must be dismissed.

Ground 3: The FTT erred in application of Item 3, Group 8, Schedule 12 VATA94

Under this ground it is argued the FTT erred in finding that the adapting of the hair fibres into a mesh to specifically address the individual hair loss was not a supply to a disabled person of services of adapting goods to suit the disabled person’s condition.

The UT recalled that the FTT did not find that hair loss in itself was a disability but considered that, in any case, to view the Kinsey system as a service of adapting goods would ‘dissect artificially’ what the system was. The FTT considered that the supply was one of a single supply of services which prevented the Kinsey system from being a service of adapting goods under Item 3.

The UT considered that the fact there was a single service did not preclude that service being viewed as one of adaptation of goods. That was not ‘artificial dissection’ but merely looking at the service to see whether it fulfilled the relevant description. HMRC was wrong to conclude that once the FTT found the overall supply to be one of services rather than goods, it was precluded from considering whether Item 3 applied on the basis that there was no supply of goods to which adaptation services could relate. The UT considered that a composite supply classified as a service may still involve goods as part of that supply.

The UT concluded that the FTT fell into error in its application of Item 3 by ruling out that item’s application on the misconceived basis that because it had found the overall supply was one of services that Item 3 could not therefore apply. That was clearly material and the FTT decision should accordingly be set aside in relation to this point because it excluded the service from consideration under Item 3, when if it had been considered, it was possible on the facts for Item 3 to be considered satisfied.

Ground 5: Edwards v Bairstow

MGL argued that the FTT’s conclusion that significant hair loss or baldness in women is not a disability was perverse. It argued that no reasonable tribunal could have reached that conclusion on the evidence.

HMRC argued that the FTT’s conclusion was within the reasonable bounds of what the FTT could decide on the evidence before it. It found no evidence that the medical profession treats hair loss as a chronic illness and concluded that hair loss does not substantially limit everyday activities.

The UT recalled that under Edwards v Bairstow, an appellate court may interfere with findings of fact where they are such that no reasonable tribunal, properly instructed, could have reached them.

The UT considered that the question of whether a given set of facts relating to a condition advanced as a disability do amount to a disability involves a question of evaluative judgment. The issue before the FTT was one on which differently constituted tribunals might reasonably arrive at different outcomes. While the UT concluded the FTTs’ reasoning was inadequate, it could not say that its conclusion that severe baldness in women was not of itself a disability was a conclusion that was one that no reasonable tribunal could have reached and therefore perverse. The UT therefore rejected this ground of appeal.

Set aside and remaking of the FTT decision

The UT considered that the errors of law under Ground 1 and Ground 3 were material errors of law, requiring the FTT decision to be set aside at least in respect of the analysis (or more accurately in respect of Ground 1 on inadequacy of reasoning) covered by those grounds.

Remaking the decision, the UT adopted the FTT’s findings regarding the clients to whom the treatment was provided, the severity of their hair loss, and the nature of the treatment provided. It also adopted the FTT’s conclusion that the supply was a supply of services rather than of goods.

The UT noted that the term ‘disability’ is not statutorily defined. The only additional assistance given in the legislation is that it includes someone who is chronically sick. The UT considered that the term should be given its ordinary meaning.

The UT considered that the question of whether a condition amounts to a disability should recognise that the impact of the condition may arise from the background social reality of how people with the condition are treated. HMRC’s purely physically based approach is too narrow when considering the impact of the condition. The assessment of the impact of disability should take full account of any real-world social context. To ignore the very real impacts a disfiguring condition might have on the everyday activity of someone seeking to go about the daily business of life, which will inevitably involve activity where one is visible to and required to interact with others, is to deny social reality.

The UT agreed that in the immediate case, judicial note should be taken of:

1. The very deep impact of hair loss on women
2. The cultural focus on women’s hair
3. The rarity of women in the community with visible hair loss or baldness

The UT concluded that severe hair loss in women constitutes an impairment that adversely affects the ability to carry out everyday activities. These activities include work, leisure, socialising, self-care and caring for others; activities which, at least to some degree, involve being visible to others in public. This is not because hair loss physically prevents participation in such activities, but because of the distress that would ordinarily be experienced by a woman with severe hair loss if no steps were taken to conceal it. That distress arises from the cultural significance of hair to female identity, societal expectations regarding appearance, and the different standards applied to women. The women treated by MGL, those with baldness or patchy hair loss rather than mere thinning, were, by virtue of that condition, ‘disabled’ within the meaning of the legislation.

Applying the ordinary meaning of ‘disability’, the UT concluded that the severe hair loss suffered by the service recipients in this case constitutes a disability. It is therefore unnecessary to decide whether such hair loss could also be described as ‘chronic sickness’.

The UT stressed that its decision is confined to the facts of this case and to women who experienced baldness in the form of severe and patchy hair loss.

Considering whether MGL’s service can be described as that of adapting goods to suit the condition of the disabled person, the UT noted that the goods in question are the hairpiece and the strands of hair. It had no difficulty in describing the process, whereby the hairpiece and strands of hair are fitted and maintained, as one of adapting those goods to suit the condition of the ‘disabled person’ in circumstances where the condition is the lack of hair. The way in which the hairpiece is constructed, and it and the artificial hair strands are fixed, will vary according to the particular individual pattern of hair loss of the woman. The maintenance process included within the overall supply similarly involves adjusting the anchor points of the goods to make sure they fit with the remaining hair and can similarly be described as ‘adapting the goods’. Each of the supplies in question were therefore supplies which fell within the terms of Item 3, Group 12 and were therefore zero-rated.

Comments: The decision demonstrates the complexity around meeting specific conditions to obtain zero-rating. In this case, the Appellant met the conditions for a supply to a disabled person of services of adapting goods to suit their condition. Clients making similar supplies may wish to consider the decision further.

For further information, please contact Russell Moore.

Topics – Import VAT – entitlement to VAT credit

Yourway Transport Limited

The First-tier Tribunal (FTT) has released its decision in this case concerning the recovery of import VAT incurred on importing drugs and medicines (trial drugs) used for clinical trials. Yourway Transport Limited (YTL) handled the logistics to enable its (mostly American) biopharma company clients (who produced the trial drugs) to get the trial drugs to hospitals and clinics (mostly in Europe) where they were needed, in a safe, compliant and timely manner.

YTL operated a depot for the trial drugs in the UK, where they were kept under strictly controlled conditions (including in relation to temperature control) to ensure safety and conformity to regulatory requirements. Clients sent the trial drugs to YTL who took care of all UK import formalities, including by being the importer of record; clinics and hospitals (mostly in Europe) operating clinical trials would then place orders with YTL, via a software platform known as IRT. YTL then picked, packed and delivered the ordered trial drugs, which usually involved exporting them out of the UK. In essence, YTL provided a ‘one stop shop’ for its (largely US) biopharma company clients with regard to getting their trial drugs delivered to the clinics and hospitals (outside the US) which needed them, in a safe, compliant and timely manner. YTL was paid for its services by its biopharma company clients.

Throughout the time that YTL held the trial drugs, it did not own them; ownership remained with the biopharma companies, until they were delivered to the clinics and hospitals (at which point, the trial drugs belonged to them).

YTL imported and exported the trial drugs out of the UK, in its own name.

The principal issue in the appeal was whether the import VAT incurred by YTL in VAT periods 9/19 to 9/20, on importing the trial drugs was (a) input tax which, under s24(1) VATA94, requires that the trial drugs are goods used or to be used for the purpose of any business carried on by the YTL, that was (b) allowable under s26 because it was attributable to taxable supplies made by YTL in the course or furtherance of its business.

The parties presented their cases on the basis that, given that the appeal concerned periods prior to ‘Implementation Period (IP) Completion Day’ (marking the end of the Brexit transition period), EU directives, and the decisions of the CJEU (which pre-dated the IP completion date), were legally authoritative.

The FTT recalled that s47(1) VATA94 is a deeming provision, the effect of which is that goods imported in certain circumstances are treated as imported and supplied by the taxable person as principal. Following Fowler v HMRC, the extent of the fiction created by a deeming provision is primarily a matter of construction of the statute in which it appears. For that purpose, the court should ascertain, if it can, the purposes for which and the persons between whom the statutory fiction is to be resorted to, and then apply the deeming provision that far, but not where it would produce effects clearly outside those purposes.

The FTT, considering the application of s47(1)(b), noted that there is no question that the trial drugs were imported from places outside the member States by a taxable person, namely, YTL, and that the biopharma companies (who owned the trial drugs) were not taxable persons. The important questions, as to whether s47(1)(b) applies in this case, are therefore: (a) did YTL supply the trial drugs as agent for the biopharma companies; and if so (b) did YTL act, in relation to that supply (as agent), in its own name?

The FTT considered that where the trial drugs were sent to clinics and hospitals in EU countries (not the UK), YTL, acting as agent of the biopharma companies, but acting in its own name, removed those drugs in those cases from the UK to EU countries; this was in the course or furtherance of the biopharma companies’ businesses; and was for the purpose of taking the trial drugs to a place other than that from which they were removed.

The effect of s47(1) and paragraphs 5 and 6 of Schedule 4 to VATA94 is that those EU-destined trial drugs fell to be treated as imported and supplied by YTL as principal. YTL, acting as agent in its own name, removed the goods in the course of its businesses to a place outside the UK. Applying Article 168(e), the import VAT on those EU-destined consignments had a ‘direct and immediate link’ with YTL’s deemed taxable supplies of those goods, satisfying deductibility.

The FTT concluded on this point that the import VAT incurred by YTL on imports of EU-destined trial drugs fell, in the particular circumstances of this case, to be afforded a VAT credit; and, to that extent, the appeal succeeds.

Considering the position regarding import VAT on trial drugs not destined for EU countries, the FTT noted that paragraphs 5 and 6 of Schedule 4 to VATA94 and the ‘deeming’ effect of s47(1) does not apply to trial drugs that either remain in the UK or are exported to countries outside the EU; s47(2A) providing no assistance in this regard. Taxable outputs in those instances are YTL’s services to the biopharma companies, not supplies of those goods. There is no direct and immediate link between the import VAT on those non EU/UK-retained consignments and any taxable output. An alternative factual argument that YTL owned the goods was rejected by the FTT as contrary to the evidence.

On the argument of legitimate expectation, the FTT held that none arose.

In summary, the FTT allowed the appeal with respect to import VAT on trial drugs which were sent by YTL to EU countries but dismissed the appeal with respect to other import VAT. The parties were directed to agree the recoverable quantum accordingly.

Comments: This case highlights a key post-Brexit shift in how UK import VAT interacts with goods moving between the UK and the EU, especially where supply chains involve complex agency relationships. Before Brexit, EU VAT law and CJEU case law applied, allowing YTL to rely on EU rules that treated it as making a deemed supply when exporting EU destined goods as an agent acting in its own name. This meant the import VAT on those consignments had a direct and immediate link to its taxable outputs and was therefore recoverable. Post Brexit, however, those EU driven deeming rules and automatic cross border treatment no longer apply in the same way.

Also, in 2025, HMRC clarified the UK position and now considers that import VAT on goods you do not own is generally not recoverable. HMRC reaffirmed, supported by the 2025 TSI Instruments Limited tribunal decision, that only the owner of the goods, or someone with the right to dispose of them as owner, can recover import VAT. Simply acting as the importer of record or paying the VAT is not enough. Recovery is only possible where the value of the goods forms part of the taxable supply and there is a direct and immediate link between the import VAT and the business’s outputs. This decision follows that of Piramal Healthcare UK Limited where the FTT held that VAT on imported goods cannot be recovered where the supplier remains the owner of those goods. Please also refer to HMRC’s policy – VIT13300 – VAT Input Tax basics: recipient of supply – HMRC internal manual. Importers that do not fall within the terms of HMRC’s policy should consider options such as Inward Processing if not already implemented and check whether there are any post-Brexit import VAT reclaims that should be regularised in light of this (particularly where the issue may have been hidden through the incorrect use of PVA).

For further information please contact Gerard Koevoets.

This Guidance explains what you need to do when importing goods from outside the UK to a customs warehouse. The 'Using a customs warehouse' section has been updated to include more information on what goods can be stored in a customs warehouse. The 'Types of customs warehouse' has been updated to include information on both a private and public customs warehouse.

This Guidance explains what you need to do and how to apply to operate a customs warehouse when importing to the UK. The 'How to cancel or amend your authorisation' section has been updated with more information about customs warehousing.

For further information please contact Gerard Koevoets.

This Guidance provides details regarding the rates of duty for beer, cider, spirits, wine and other fermented products. Duty rates have been updated.

Please also refer to:

• Excise tax types, excise duty rates and supplementary guidance
• How to work out your Alcohol Duty rates if you’re eligible for Small Producer Relief
• Work out how much Alcohol Duty you need to pay
• Check if you can pay less Alcohol Duty on draught alcoholic products

For further information please contact Craig Clark.

Oman

Royal Decree No. 8/2026 has been issued and establishes the International Financial Centre of Oman (IFC Oman). This new financial centre will operate with legal personality and financial independence, reporting directly to the Deputy Prime Minister for Economy and Finance. The Decree, effective 13 January 2026, marks a significant step in Oman's strategy to enhance its position as a leading international financial hub.

IFC Oman aims to:

• Strengthen Oman's reputation as a stable and reputable international financial centre
• Support sustainable economic diversification and boost the financial sector's contribution to the gross domestic product
• Attract both regional and international capital, positioning Oman as a prime investment destination aligned with international standards

To attract investment, IFC Oman will offer:

• Exemption from income tax for entities engaged in eligible activities as defined by IFC Oman's tax regulations
• Exemption from income tax/withholding tax for non-resident legal persons on income (such as royalties, service fees, management fees, etc.) earned from transactions with IFC Oman authorities or establishments
• Exemption from income tax/withholding tax for a non-Omani natural person on certain transactions with IFC Oman authorities or establishments, whether generated within or outside Oman
• Treatment of IFC Oman as a designated special zone to implement the provisions of the VAT Law concerning exempt supplies and supplies with a 0% tax rate

Businesses and investors should assess potential opportunities presented by IFC Oman, including the potential for tax incentives and a supportive regulatory environment. As IFC Oman prepares to launch its operations, stakeholders should stay informed about the evolving regulatory landscape and engage with IFC Oman to benefit from potential strategic advantages.

Saudi Arabia

Ministerial Resolution No. 468 has been issued and implements Regulations for Special Economic Zones (SEZ). The Regulations introduce tax and customs incentives, along with mandatory licensing requirements specific to the four SEZs through the Economic Cities and Special Zones Authority (ECZA).

Applications for VAT and Customs:

• VAT at zero rate applies to supplies of goods made from other regions of Saudi Arabia to an establishment licensed within the SEZs. This treatment also applies to supplies between licensed entities within the same or different SEZs under two conditions: (1) the goods are placed under customs suspension and (2) the goods are connected to the establishment's licensed SEZ activities, in line with criteria set by the ECZA and the Zakat, Tax and Customs Authority (ZATCA)
• Goods imported into one of the four SEZs from outside Saudi Arabia are treated as outside the scope of VAT under two conditions: (1) the goods are placed under customs suspension and (2) the goods are connected to the establishment's licensed activities within the SEZ
• Customs duties will be suspended on goods brought into a licensed establishment within the SEZs, provided the goods relate to the establishment's licensed activities and are placed under one of the customs duty suspension regimes in accordance with the Unified Customs Law

Businesses operating or planning to operate within any of the four SEZs should: assess their corporate structures for compliance with the new Regulations; understand specific tax, customs and labour obligations/implications; improve supply-chain processes to leverage available incentives; and update internal governance and human resources policies to align with the regulatory framework.

Article 258 of the Treaty on the Functioning of the European Union, gives the Commission the power to take legal action against a Member State that is not respecting its obligations under EU law.

The infringement procedure begins with a request for information (a ‘Letter of Formal Notice’) to the Member State concerned, which must be answered within a specified period, usually two months.

If the Commission is not satisfied with the information and concludes that the Member State in question is failing to fulfil its obligations under EU law, the Commission may then send a formal request to comply with EU law (a ‘Reasoned Opinion’), calling on the Member State to inform the Commission of the measures taken to comply within a specified period, usually two months.

If a Member State fails to ensure compliance with EU law, the Commission may then decide to refer the Member State to the CJEU.

The latest listing of infringement decisions (January) includes the following actions:

• The European Commission has opened infringement procedures by sending a letter of formal notice to 12 Member States – Belgium, Bulgaria, Czechia, Estonia, Greece, Spain, Cyprus, Luxembourg, Malta, the Netherlands, Poland and Portugal for failing to fully transpose Directive (EU) 2023/2226. This Directive amends the Directive on administrative cooperation in the field of taxation (Directive 2011/16/EU) to enable tax transparency and information exchange regarding crypto-assets and to enhance the information exchanges regarding financial accounts. The timely and full implementation of the rules of the Directive by all Member States is key to achieving greater tax transparency and combating tax avoidance and evasion in investment income.
• The European Commission opened infringement procedures by sending a letter of formal notice to 10 Member States – Belgium, Bulgaria, Czechia, Greece, Cyprus, Malta, the Netherlands, Portugal, Romania and Sweden for failing to fully transpose Directive (EU) 2025/872, which amends the Directive on administrative cooperation in the field of taxation (Directive 2011/16/EU). The Directive requires the Member States to fully implement the new information exchange rules on administrative cooperation in the field of taxation.
• The European Commission has sent reasoned opinions to Denmark (INFR(2025)2011) and Slovakia (INFR(2025)2058) for failing to fulfil their obligations to transmit customs data to the Commission through the SURV3 system, as required under Article 16(1) of the Union Customs Code (UCC) Regulation (EU) No 952/2013, Articles 55(1) and 56(1) and Annex 21-03 of Commission Implementing Regulation (EU) 2015/2447. Member States must transmit to the Commission, via SURV3, data extracted from their national systems on import and export declarations, covering 57 standardised data elements. This will ensure uniform application of the EU customs law, as well as help monitor trade flows, prevent fraud and support EU-level customs policy decisions. The Member States concerned transmit only a limited subset of these elements, and continue to use outdated formats, which affects the Commission's ability to monitor EU trade flows and ensure uniform application of customs rules. Despite the letters of formal notice sent between May, June and July 2025, the two Member States have not yet achieved full compliance, as evidenced by the data reported in SURV3.
• The European Commission has sent a reasoned opinion to Belgium (INFR(2025)2016) for failing to fully implement the Temporary Storage system for Air transport as required by the Union Customs Code (UCC) Regulation (EU) No 952/2013 read in conjunction with Article 2(2) Commission Implementing Decision (EU) 2023/2879 and point II.13 of the Annex to that Decision. This system is a key component of the UCC's digital customs framework. Member States were required to make it fully operational by 31 December 2023. Despite an earlier letter of formal notice, Belgium has not yet deployed this system, nor has it provided a credible implementation plan.