Summary
This month we have another food related case, with the Upper Tribunal finding the dip pots of sauces provided as part of a takeaway meal deal can be zero rated. The case raises a new angle on the thorny VAT issue of how to deal with complex single / multiple supplies. In a second recent case on the interaction between VAT and transfer pricing, the Court of Justice has ruled the downward transfer pricing adjustment between related car manufacturers and distributors is not a supply of services by the distributor.
HMRC have announced a temporary reduced rate for certain child friendly supplies over the summer and have declared their intention to appeal against the FTT ruling on public electric vehicle charging points.
News from the UK Courts and Tribunals
Upper Tribunal (UT)
[2024] UKFTT 460 (TC) Queenscourt Limited
The Upper Tribunal’s decision in Queenscourt provides an important clarification of how VAT should be applied to multi‑element transactions, rejecting the possibility of a “hybrid” analysis in which some elements are grouped into a composite supply while others remain separate.
The case concerned KFC meal deals supplied by Queenscourt. While HMRC had accepted that certain items (such as coleslaw, cookies and yoghurts) within takeaway meal deals could be treated as separate supplies, it refused a later claim relating to dip pots, arguing these were ancillary to the hot food and therefore part of a single composite supply. The First-tier Tribunal (FTT) agreed with HMRC and went further, holding that within a single transaction some elements could form a composite supply while others remained separate. Queenscourt appealed this aspect of the decision.
The key issue before the Upper Tribunal (UT) was whether this “partial combination” approach is legally permissible. Queenscourt argued that VAT analysis operates on a binary basis at the level of the transaction: either the whole transaction is a single composite supply, or it comprises multiple separate supplies, with each element taxed individually. In contrast, HMRC’s position (accepted by the FTT) was that the principal/ancillary test could be applied to subsets of elements within a transaction.
In resolving this, the UT revisited established EU case law, particularly Card Protection Plan (CPP), Levob, Purple Parking and Field Fisher. These authorities establish that the starting point is that each supply is distinct and independent. However, an exception applies where elements are so closely linked that they form a single economic supply, or where one element is principal, and the others are merely ancillary.
The UT emphasised that this exception must be applied holistically to the transaction as a whole. The case law consistently frames the analysis as a choice between a single supply and multiple supplies; it does not contemplate a mixture of both within a single transaction. The principal/ancillary test is therefore not a flexible tool that can be used to carve out sub-groups of elements. Instead, it is a mechanism for determining whether the entire bundle should be treated as a single supply.
A key concern for the UT was legal certainty. Allowing partial grouping would introduce subjectivity and create practical difficulties, as there is no clear or principled basis for determining which elements should be grouped and which should remain separate. This would risk inconsistent outcomes and make VAT treatment less predictable. The UT also stressed that VAT analysis must reflect the economic reality of the transaction as actually supplied, rather than artificially dividing it into hypothetical sub-transactions.
On this basis, the UT concluded that the FTT had erred in law. A transaction cannot be partly composite and partly multiple. Instead, each element must be treated as a separate supply unless all elements together satisfy the criteria for a single composite supply.
The decision is significant for VAT practitioners and businesses offering bundled products. It confirms that VAT treatment must be determined by analysing the supply in its entirety. There is no scope to optimise outcomes by selectively grouping elements within a package. Businesses must therefore adopt a clear, consistent approach: either treat the whole bundle as a single supply where the conditions are met, or treat each component as separately taxable.
Comment: This decision, if not appealed will provide a precedent to be followed by the First Tier Tribunal. However, we have the recent case of Clearwater Hampers, where the HMRC and the Taxpayer agreed there was a multiple supply (food and beverages taxed at zero and standard rates) but FTT found the wicker basket was ancillary to both, rather than taxed as a separate supply. Would the FTT have found differently if the Queenscourt UT Judgment had been released first?
First-tier Tax Tribunal (FTT)
Nothing of major interest this month.
Court of Justice of the European Union (CJEU)
Judgement Case C-603/24 Stellantis Portugal SA – Portugal
On 13 May 2026 the CJEU handed down its judgement on the VAT implications of transfer pricing adjustments in the Stellantis Portugal dispute. It found that downward pricing adjustments by suppliers of cars and parts did not equate to supplies of services by the customers.
Background
Stellantis Portugal acted as the national sales company, purchasing vehicles from EU‑based car and parts manufacturers, and reselling them to independent dealers. It made a gross profit on the purchase and sale of cars and parts. Stellantis bore the costs of distribution and its own staff etc. If a vehicle was faulty during the guarantee period, the local dealer would charge the costs to Stellantis. The warranty and distribution costs were treated as part of a contractual profit‑allocation mechanism within the General Motors group. Under this mechanism, the transfer price was initially set with reference to expected costs and profit margins and later adjusted through credit or debit notes to ensure the distributor reached an agreed operating profit.
Following an audit, the Portuguese tax authority characterised the downward price adjustment (money due to Stellantis Portugal supported by a credit note from the manufacturer) as consideration for a service supplied by Stellantis Portugal, asserting that warranty and related costs represented services rendered to the manufacturer.
Advocate General Opinion
In January 2026 the Advocate General rejected this view. First, an adjustment of a sale price, upward or downward, cannot itself be a supply of services, let alone one with “negative consideration”. Second, merely bearing costs, including warranty costs, does not constitute a service: VAT requires a payment “in return for” a supply, which is absent here. Third, profit allocation within a group is, in principle, irrelevant for VAT.
The AG continued to outline three potential scenarios:
- Genuine separate services remunerated contractually; in essence this was the situation described in the Arcomet dispute, where the Court found that there was a taxable supply for consideration, but with the caveat that for input tax recovery the supplying party could be asked for evidence of the substance of the supplies
- Unilateral tax authority transfer pricing adjustments, which are understood to be adjustments only made to one or both companies' Corporate tax returns, or accounting adjustments in financial statements, these are irrelevant for VAT; and
- A contractually agreed variable price linked to specific supplies - the situation here. Such adjustments are governed by the VAT Directive - they modify the taxable amount of the original supply, not create a new supply.
Court Judgement
As predicted, the Court only considered the narrow question referred, rather than the general guidance proposed by the AG, finding that the price adjustment under the terms of the transfer pricing agreement did not constitute consideration for a supply of services by the vehicle distributor. This would only be the case if there was an explicit agreement that the distributor was supplying warranty services, but no evidence of these circumstances had been presented to the Court.
Comment: There are now two recent CJEU cases on the VAT implications of transfer pricing adjustments. Arcomet Cranes confirmed that an upward pricing adjustment by the supplier could constitute further consideration for a supply of services and Stellantis Portugal confirmed that (without specific evidence to the contrary) a downward pricing adjustment does not constitute consideration for a supply of services by the customer. It is therefore critical that transfer pricing arrangements are clearly documented and the VAT consequences are fully considered. Businesses operating in the financial services sector that make transfer pricing adjustments should consider the potential impact of these adjustments given they could impact partial exemption calculations (outbound services) and supplies into the UK (inbound services). However, some uncertainty remains in the scenarios outlined by the Advocate General in Stellantis so we can expect further referrals to the European Court in future.
While the Court’s judgment is only persuasive in the UK, if you have any concerns arising from the VAT implications of transfer pricing, please get in touch.
Opinion T-366/25 Szytelbiecka/DB, - Poland - whether gifted assets to daughters as individuals is a TOGC
The Advocate General has concluded that a business gifted by a mother to her two daughters as individuals, who then transfer it into a partnership, does not qualify as a transfer of a business as a going concern (TOGC). Each daughter received only a 50% interest, which was not a self-standing business capable of operating independently. In addition, the daughters did not intend to carry on the business themselves, with activity instead continuing through their partnership.
The AG also rejected arguments that the steps should be viewed as a single transfer to the partnership, emphasising that legally distinct transactions must be assessed separately.
Comment: This opinion is an interesting canter through the finer points of TOGC rules and takes a strict approach to both the identity of the transferee and the requirement that the transferred assets themselves must enable an independent activity to continue. We do not have enough information about the precise legal form of the transfers and the reasoning behind this structure to make a meaningful and practical comparison of this case to common TOGCs in the UK. Nevertheless, we will watch out for the court’s final judgment in case it clarifies the background facts or raises any other important points about the conditions of a TOGC.
It should have been possible to avoid this dispute with a bit of thought and planning: the sisters could have set up a 50:50 partnership with nominal assets and an intention to seek new business assets, and once set up the mother could have transferred her business assets to the partnership as a straightforward TOGC. We expect the Court Judgement will follow the AG’s opinion and will report on this in due course.
Opinion T-397/25 A&P Deco – Belgium – whether leased assets included in VAT free TOGC
The Advocate General has considered whether input tax must be adjusted where, as part of a transfer of a going concern (TOGC), business premises are retained by the seller and leased to the buyer.
In this case, A&P Deco sold its garden centre business but kept ownership of one building, leasing it to the purchaser under an exempt lease. Although the buyer continued the same taxable activity, the Belgian tax authority argued that the seller’s use of the retained property had changed to exempt letting, triggering a capital goods scheme adjustment.
The Advocate General agrees. He concluded that a lease does not constitute a transfer of ownership, meaning the seller continues to “use” the property for VAT purposes. As that use is now an exempt activity, previously recovered VAT must be adjusted.
Comment: It appears that A&P Deco could not opt to tax the property at that time of the transfer because Belgium did not introduce the option to tax until 2019. This precise issue would probably only arise in the UK in the event of the transferor failing to opt to tax the property before the TOGC took place, in which case they are likely to have to make capital goods scheme adjustments in favour of HMRC. We will report on the Judgement of the Court in due course.
HMRC
Revenue and Customs Brief 5 (2026): Temporary reduced rate of VAT for children's meals, tickets and family attractions was issued on 21 May in line with the Chancellor’s announcement. While we await the fine print in the statutory instrument that will set out the detailed rules, our insights article can be found here UK VAT cut for family attractions: Practical considerations for businesses | Grant Thornton
HMRC has published a new brief on the ever-developing issue of electric vehicle charging.
In a short statement, HMRC confirms that it will be appealing against the recent FTT decision in Charge My Street, where it was held that the social enterprise’s direct supplies of EV charging to motorists were eligible for the reduced rate of VAT.
Although this case raised several VAT issues related to EV charging, HMRC’s brief focuses on the FTT’s interpretation of the ‘fuel and power deemed to be for domestic use’ rule in the VAT Act. This applies the reduced rate to supplies of electricity to an identified person at any identifiable premises, provided the total supplied does not exceed 1,000 kWh in a calendar month.
In Charge My Street, the FTT ruled that there is no additional requirement for the premises to be owned or controlled by the person receiving the supply, nor do the premises need to be buildings, meaning that locations such as public car parks may be included.
However, in its latest brief, HMRC maintains its view that charging electric vehicles at public charge points is standard rated for VAT.
Comment: This announcement would appear to match the suggestion that HMRC had appealed Charge My Street and would focus on this aspect of the FTT’s findings. We now await the Upper Tribunal’s decision on whether it will grant HMRC permission to appeal, with hearing dates to follow in due course.
Tell HMRC about an option to tax on property as part of cancelling your VAT registration
HMRC has published a new guidance page and portal through which a deregistering business can notify HMRC of any opted properties that it has owned or still owns under this registration. This includes a reminder that VAT must be declared on any disposal of the opted property or confirm that it is being retained, in case any post-deregistration liabilities might arise, eg, on a post-deregistration disposal in cases where the option to tax hasn’t been revoked, or in case of any further interests granted in the property after deregistration.
Parliament
House of Commons Briefing: VAT on Churches
The listed places of worship grant scheme came to an end on 31 March 2026. There has now been a Commons briefing released looking at VAT on Churches.
House of Commons Library: VAT on tourism and hospitality services
This briefing gives a short introduction to the way VAT works, and the significance that EU VAT law has had for setting VAT rates, before discussing the campaign for a lower VAT rate on tourist services, and the introduction of a temporary reduced VAT rate for hospitality, holiday accommodation and attractions which applied from July 2020 to March 2022.