Corporation tax

Judicial review on HMRC’s discretion to allow late tax loss claims

The Upper Tribunal has dismissed a taxpayer’s judicial review in the case R (on the application of Rettig Heating Group UK Limited (in liquidation)) v HMRC. The decision concerns a refusal to exercise the discretion granted to HMRC by statute to extend the normal two-year time limit for a company to make a claim to set-off non-trading loan relationship deficits (ie, a type of tax loss) against other taxable profits. In this case, the deficits and profits arose in the company’s accounting period ended 31 December 2002, but it was not until 2021 that it sought to make the late offset claim. The significant delay was attributed to the protracted litigation in the Franked Investment Income (FII) line of tax cases that eventually determined that, at the time, the dividend income in question was taxable and not, as the taxpayer had believed, exempt from corporation tax under EU law grounds.

In refusing to exercise its discretion, HMRC applied its general approach to late claims and procedures set out in Statement of Practice (5/01) (the statement). The Upper Tribunal dismissed the judicial review arguments that HMRC had incorrectly applied the statement. The Tribunal held that a reference in the statement to a scenario where a company was previously “unaware of profits against which the company could claim relief” did not extend to situations where the existence of profits was known and only the taxable nature of the profits was unclear. Similarly, it held that this was not an example of a situation where the amount of a loss or profit depended “upon discussions with an inspector” not complete at the time the two-year time limit expired. The Upper Tribunal held further that the taxpayer’s request had not been made “as soon as possible” as required by the statement.

Rettig Heating Group UK Limited (in liquidation), R (on the application of) v HMRC [2025] UKUT 143 (TCC)

From the Business Tax Briefing dated 9 May 2025, published by Deloitte

VAT

What to do while waiting for a VAT number

A business must register for VAT in the UK if its total taxable turnover exceeds £90,000 in the past 12 months, or if it is expected to exceed £90,000 within the next 30 days. When registering for VAT, the business must provide its effective date of registration (EDR), ie, the date it first becomes liable to register for VAT.

There can sometimes be a delay in receiving the business’s VAT registration number (VRN) from HMRC. In the recent case of Sammy Garden Ltd v HMRC, the business was under the misconception that output VAT was only due on sales made after it received its VRN. The case is a useful reminder of how a business should proceed while waiting for its VRN. 

The business must start keeping records and account for VAT from its EDR. However, it must not show VAT as a separate item on any invoices it issues until it receives its VRN. Within 30 days of receipt of the VRN, the business should reissue the invoices, now showing VAT. 

However, it’s important to note that the total invoice value stays the same, it is just now split between the amount charged for the goods or services and VAT. For this reason, the business may wish to increase its prices to include an amount equivalent to the VAT before sending the initial invoice. It is recommended that the business explains to its customers that it will issue a VAT invoice upon receipt of its VRN. 

This is explained in more detail in section 5.1 of VAT Notice 700/1.

Prabhat Nayak

Sammy Garden Limited v HMRC [2025] UKFTT 274 (TC)

Whether supplies of vitamin drips and injections are medical care 

In 2017, Get a Drip Limited (GAD) registered for VAT on the basis that its supplies of intravenous vitamin drips and injectable booster shots were zero rated as supplies of medical goods. Following discussions and an independent review, HMRC concluded that the supplies were standard rated. By then, GAD considered that the supplies were actually VAT exempt as supplies of medical care provided by registered medical practitioners or qualified nurses, and appealed HMRC’s decision. 

The First-tier Tribunal (FTT) has held that the supplies constituted the provision of medical care, and were accordingly exempt. Although GAD’s website advertised specific treatments, the particular treatment provided to a customer will be based on an assessment by a doctor or a nurse. Accordingly, the supplies were made by suitably qualified medical professionals. Therefore, the issue to be considered by the FTT was whether the supplies constituted the provision of medical care. HMRC considered that GAD’s supplies did not have the requisite purpose to constitute medical care, in particular, there was no “diagnosis, treatment or cure”, and no evidence that customers suffered from a disease or health disorder. However, the FTT agreed with GAD that the supplies were provided for a therapeutic purpose, involving the diagnosis and treatment of health disorders. 

The FTT determined that its decision must be based on an assessment of the representative product samples provided, regardless of the fact that GAD’s position on the nature of its supplies had been somewhat inconsistent. The role of expert evidence in the decision further complicated matters: HMRC withdrew the evidence of its medical expert, and raised concerns about the written evidence of GAD’s medical expert, although the FTT concluded that the expert’s oral evidence addressed HMRC’s concerns. The FTT allowed GAD’s appeal. 

Get a Drip Limited v HMRC [2025] UKFTT 500 (TC)

From the Weekly VAT News dated 19 May 2025, published by Deloitte

Zero rating of construction costs

In 2020, NHS Ayrshire & Arran Health Board sought a non-statutory clearance to treat the construction services and building materials for a national secure adolescent inpatient service (NSAIS) building as zero rated for VAT purposes. HMRC disagreed and refused the clearance, and the Health Board appealed to the First-tier Tribunal (FTT). 

The dispute before the FTT was in relation to the bedroom wing of the building. Zero rating could apply if the bedroom wing was a distinct and separate part of the building designed or intended to be used solely for a relevant residential purpose (RRP). The FTT has held that the building did not meet the definition of RRP. The Health Board considered that the bedroom wing was home for the NSAIS patients who resided there, at least for the period of residence, and that accordingly was for a RRP. However, the definition of RRP excludes hospitals or similar institutions, and the FTT agreed with HMRC that the NSAIS building complex was a hospital: medical treatment, including therapeutic activities and medication, was delivered throughout the building, including in the bedroom wing. The bedroom wing was an “integral and inextricable part” of the NSAIS building. Accordingly, no part of the NSAIS building was designed or intended for use solely for a RRP, and zero rating could not be applied to the construction costs. The Health Board’s appeal was dismissed. 

NHS Ayrshire & Arran Health Board v HMRC [2025] UKFTT 502 (TC)

From the Weekly VAT News dated 19 May 2025, published by Deloitte

Whether online maths product is a VAT-exempt examination service 

Generic Maths Limited (GM) considered that its ‘ConquerMaths’ product was a tool that provided assessments of a pupil’s maths ability, and as such was an ‘examination service’, and VAT exempt. HMRC considered that the product was an online revision/learning aid tool, and standard rated for VAT purposes since GM was not an eligible body, and assessed GM for the VAT on its supplies of the product. The First-tier Tribunal (FTT) has agreed with HMRC, and held that the product was not a supply of examination services.

The FTT considered that the correct test for determining the nature of GM’s supplies was an objective test, based on how they would be characterised by the typical consumer. On that basis, ConquerMaths was a teaching product designed to improve maths understanding, not an examination service. Furthermore, if the correct test was rather a functional test, the result would be the same. Although ‘examination services’ is wider than formal public examinations, it is not wide enough to encompass a product such as ConquerMaths. The FTT also found that HMRC’s assessment had been made using best judgement, and HMRC’s decision was reasonable and not arbitrary. The FTT dismissed GM’s appeal. 

Generic Maths Limited v HMRC [2025] UKFTT 460 (TC)

From the Weekly VAT News dated 12 May 2025, published by Deloitte

Whether aligners are dental prostheses

The First-tier Tribunal (FTT) has considered the classification of dental aligners for VAT purposes and whether they constitute dental prostheses within Items 2 and 2A of Group 7, Schedule 9, VATA 1994, and were therefore VAT exempt. 

Align Technology Switzerland GmbH and Align Technology BV (herein referred to together as ‘Align’) make removable orthodontic appliances used to correct misaligned teeth (aligners). Align treated its supplies of aligners as VAT exempt as supplies of dental prostheses. HMRC considered that aligners were not dental prostheses, and that supplies of aligners should accordingly be standard rated. The VAT exemption applies where dental prostheses are supplied by a dentist or dental technician; Align does employ dental professionals registered in the UK. Prior to the hearing HMRC noted that it reserved the right to raise the issue of whether the supply was made by a dentist/dental technician in subsequent proceedings, such that the sole question in this hearing was whether aligners constitute prostheses for VAT purposes. 

The FTT has held that aligners are dental prostheses. The FTT considered the meaning of ‘prosthesis’ in everyday language, referring to English language and, in particular, specialist medical dictionaries, concluding that the word ‘prosthesis’ is not limited to replacements for a body part, but can include devices that improve bodily function. Accordingly, ‘dental prostheses’ include “orthodontic appliances used to move a person’s teeth”. The FTT also found that VAT exemption for the supply of aligners would be consistent with the objectives of the exemption for dental prostheses, namely to ensure the affordability and accessibility of health-related products. The FTT also reviewed some EU VAT Committee working papers, but did not follow the Committee’s guidelines on this issue. The FTT allowed Align’s appeal. 

Align Technology Switzerland GmbH & Anor v HMRC [2025] UKFTT 462 (TC)

From the Weekly VAT News dated 12 May 2025, published by Deloitte

Self-employed and tax

A trade existed, but not with a view to profit

The First-tier Tribunal (FTT) has found that a shoot run on a country estate was a commercial trade, but as it was not run with a view to profit, no sideways loss relief was available.

The taxpayer ran a shoot on her estate. The shoot was loss making, and she claimed sideways loss relief from it against her general income. HMRC disallowed the claims, and she appealed.

The FTT heard evidence on the operation of the shoot, one of three activities on the estate, and the income levels from it. It concluded that the taxpayer was operating the shoot as a trade, separate from the other activities of the estate. The trade was commercial, but was not carried on with a view to the realisation of profits, so sideways loss relief was not available.

McDonald v HMRC [2025] UKFTT 495 (TC)

From Tax Update May 2025, published by S&W Partners LLP