Summary
This month the main topics of discussion are Court and Tribunal decisions relating to further education funding, rebates paid by pharmaceutical companies to the Department of Health and Social Care and the VAT rate applicable to electrical vehicle charging.
We also cover recent Judgements from the CJEU where they may have an impact in the UK, or confirm that the UK’s treatment appears to be consistent with EU VAT principles.
Finally we comment on HMRC’s deliberations on its suspended penalty regime, and its work on the implications for the health care sector of the Isle of Wight NHS Trust decision on the provision of locum doctors.
News from the UK Courts and Tribunals
Court of Appeal
[2026] EWCA Civ 363 Colchester Institute Corporation – whether central funding is consideration for business supplies
The Court of Appeal has upheld earlier Tribunal rulings that government funding paid to Colchester Institute Corporation counts as consideration for VAT purposes. The Court found that the funding functions as payment for delivering approved courses to eligible students because the agreements tie funding directly to course delivery, use formulas based on student numbers, allow clawback for under‑delivery, and operate as a substitute for student fees. The key takeaway is that where funding is tied, directly or indirectly, to the education supplied, it is highly likely to fall within the scope of VAT.
Comment: The ruling goes against HMRC’s long standing policy that Further Education provided for no charge to students is a non-business activity. It seems HMRC will need to change its policy (assuming there is no appeal to the Supreme Court and no law change) and this may be advantageous to FE Colleges in terms of partial exemption recovery but they will lose Relevant Charitable Purpose Relief and reduced rate relief for fuel and power.
[2026] EWCA Civ 170 BYL & Others - VAT on private schools - judicial review on compatibility with human rights legislation
The Court of Appeal issued its decision in the judicial review challenging aspects of the government’s introduction of VAT on private school fees. The applicants have lost their appeal against last year’s High Court ruling that the new rules do not infringe human rights of certain students who attend private schools due to a lack of suitable options in the state school sector.
Comment: This outcome was widely expected but we can continue to use it as a talking point with the many schools we are advising on VAT issues related to the introduction of VAT on private school fees. We understand the applicants are considering a further appeal to the Supreme Court so the litigation may not be over.
Upper Tribunal (UT)
[2026] UKUT 135 (TCC) Boehringer Ingelheim Limited (BIL) – whether payments made to DHSC reduced output tax
The Upper Tribunal has overturned the decision of the FTT that a pharmaceutical company is entitled to reduce its output tax when it pays a retrospective amount to the Department of Health and Social Care.
The Disputed Payments: BIL paid significant amounts to the Department of Health and Social Care (DHSC) under the Pharmaceutical Price Regulation Scheme (PPRS) and Voluntary scheme for branded medicines pricing and access (VPAS). BIL treated these as rebates reducing its taxable consideration for earlier supplies of medicines.
In overturning the FTT ruling the UT found that DHSC provides general, non‑ringfenced budget funding to NHS England. It does not directly reimburse or pay for specific medicines supplied for final consumption therefore it cannot be treated as a “final consumer” and the payments by BIL do not reduce the value of consumption and the taxable amount.
Comment: HMRC’s appeal almost entirely succeeded with the Upper Tribunal deciding that only payments relating to direct supplies to DHSC (eg where the DHSC buys vaccines for a nationwide programme) can be treated as rebates and all the other aspects of the claim fail.
The judgment will be disappointing for both Boehringer and other pharma companies that have claims sitting behind this appeal, however given the amount at stake for Boehringer we would expect them to take the case further - to the Court of Appeal. HMRC has been quite clever to differentiate the circumstances from those in Elida Gibbs, where the cash back or reimbursement of money off coupons was made to the final consumer or a retailer definitely involved in the supply chain. In this case HMRC successfully argued the DHSC is a general funder of the NHS not the purchaser of the products.
First-tier Tax Tribunal (FTT)
TC09789 Aspire In The Community Services Ltd – restriction of input tax incurred before the date of registration
The case concerns the VAT recovery position of Aspire in the Community group in respect of pre-registration input tax following a restructuring that shifted part of its formerly exempt care business into making taxable supplies.
Historically, Aspire in the Community Ltd (ACL) was a CQC‑registered care provider, supplying residential care that qualified for exemption under VATA 1994 Schedule 9 Group 7 Item 9b. In 2021 the group created a new company, Aspire in the Community Services Ltd (ACSL), to provide care services to local authorities and clinical commissioning groups. As ACSL was not CQC‑regulated, its supplies were standard‑rated, and its Local Authority customers could recover the VAT charged.
ACL and ACSL registered as a VAT group with an effective date of 1 May 2021. ACSL, however, did not begin making taxable supplies until 1 November 2021. As ACL continued to make exempt supplies in the meantime, the VAT group was partly exempt and adopted a use‑based partial exemption method, agreed with HMRC, which gave a 77% recovery rate.
The dispute arose over the claim for “pre-registration” input tax claimed on
- goods purchased within four years of registration and still held at the effective date; and
- services received within six months of registration.
HMRC accepted that the purchases fell within Regulation 111’s time limits, but exercised its discretion to substantially reduce the claim, allowing only £9,500 of the £31,700 calculated under the partial exemption method.
The First‑tier Tribunal has agreed with Aspire. It held that once HMRC decides to allow a Regulation 111 claim in principle, the input tax must then be treated as input tax of the first VAT period and subject only to the normal recovery rules, including partial exemption. HMRC cannot impose further bespoke adjustments for pre‑registration usage. The Tribunal also noted that the five‑year depreciation method proposed by HMRC had been considered and rejected by government in earlier consultations and had no legal basis.
Comment: Aspire’s VAT grouping structure appears to be an example of a VAT recovery arrangement used by care providers on which HMRC withdrew its approval: see Revenue and Customs Brief 2 (2025). Therefore, this decision will be directly relevant to care sector businesses who submitted pre-registration VAT claims before HMRC ended use of the structure in April 2025. The FTT notes that at least seven other similar appeals are stood over behind Aspire, so it is quite likely that there are more care sector business out there who have been subject to similar HMRC challenges when making a pre-registration input tax claim.
The FTT’s findings may also have wider application to pre-registration VAT recovery in general where HMRC has attempted to concoct further restrictions to pre-registration input tax recovery beyond the normal time limits set out in Reg 111.
TC09802 Charge My Street Limited – VAT rate applicable to Electric Vehicle Charging
The FTT has found that electricity supplied to charge vehicles at public charging points can be reduced rated.
Charge My Street is a UK social enterprise founded in 2018 with the aim of improving access to electric vehicle (EV) charging by creating a widespread network of public charge points. The organisation installs and operates around 200 public charging points across more than 100 locations, mainly in the north of England. These locations vary widely, including parish council car parks, pubs, hotels, village halls, churches, schools, colleges, and residential developments.
To provide charging facilities, Charge My Street secures rights from site owners and installs fast-charging units. Typical users are local residents without private off‑street parking who need charging sessions of around three to four hours. Charging customers pay through various methods, including contactless, QR codes, apps, and subscriptions. Most revenue over 80% is collected via the Fuuse app, with additional income coming from other third‑party apps. Supply chains vary by location: at some sites the electricity is provided through the host’s existing supply and recharged to Charge My Street, while at others the organisation contracts directly with an energy supplier.
Charge My Street initially charged VAT at 20% but later took the view that its charging services qualified for the reduced 5% rate under VATA 1994 Sch 7A Group 1, Note 5(g), which applies reduced VAT to supplies of electricity not exceeding 1,000 kWh per month at “any premises.” After HMRC rejected this interpretation, Charge My Street appealed.
The First‑tier Tribunal (FTT) broadly agreed with Charge My Street. It held that the legislation only required electricity to be supplied to an identifiable person at identifiable premises without needing the premises to belong to the customer. Therefore, chargers in public locations such as car parks could in principle qualify for the reduced rate. The FTT also found that, where Charge My Street received direct payments from customers, including through the Fuuse platform , it had made the supplies directly to drivers. However, due to different contractual arrangements with commercial eMSP apps, Charge My Street supplied the electricity to the apps which made onward supplies to users. In practice, this is likely to limit the scope of the reduced rate on Charge My Street’s supplies of charging as they are likely to exceed the 1000kwh limit to a single customer when supplied through an app.
Comment: A partial victory for Charge My Street, and likely to be good news for the industry because the FTT has found that EV charging from public chargepoints is in principal eligible for the reduced rate of VAT.
Provided the supplier is able to demonstrate through its records that its supplies to individual customers do not exceed the 1000 kwH per month limit, it would appear that it may apply the reduced rate of VAT. However, for charge point operators like Charge My Street, the reduced rate will be limited to arrangements where it is in control of the payment methods used by the customers (e.g. direct contactless payments on site or through a monthly account). Where EV charging is located and paid for through commercial apps, it seems likely that only the app will be entitled to apply the reduced rate to its supplies. The FTT’s decision may also have implications for other public charging facilities, for example public charge points for mobile phones or power bank rentals.
Court of Justice of the European Union – Judgements
Case C-472/24 Zaidimu Valiuta/MB Game Currency – whether “in game gold” is a virtual currency or a voucher
The CJEU ruled that RuneScape in‑game gold is neither virtual currency nor a voucher for VAT purposes. Because it is merely an electronic service used only within the game and not accepted as real‑world payment, it does not qualify for exemption. Likewise, it lacks the legal obligation required to be treated as a voucher. As a result, VAT applies to the full sale price rather than the profit margin.
Comment: Although the Advocate General had suggested the second‑hand margin scheme might, in theory, apply to digital game assets, the Court did not address this point, implicitly rejecting it. The AG’s opinion may still offer persuasive guidance in future disputes.
Case C-436/24 Lyko Operations – whether points are vouchers allowing VAT to be delayed
Lyko’s loyalty scheme lets customers earn points that can be exchanged for low‑value catalogue items, but only alongside an additional purchase and never for cash. The CJEU held that these points are not vouchers for VAT purposes because they do not oblige Lyko to accept them as consideration; they merely allow bonus items when another purchase is made. Although the goods are identifiable, the lack of an obligation fails the test for voucher treatment. As a result, VAT is due at the time of the original purchase, not redemption, and Lyko cannot benefit from multipurpose voucher rules or reductions for unredeemed points.
Joined Cases C‑409/24 to C‑411/24 – whether inclusive hotel charges can be subject to VAT at more than one rate
The CJEU held that Germany’s rules splitting hotel accommodation from ancillary services for VAT purposes are compatible with EU law. Although hotels often provide services like breakfast, parking, or Wi‑Fi as part of a single package, Germany can still apply a reduced rate only to short‑term accommodation and tax ancillary services at the standard rate. This is permitted under Article 98 of the VAT Directive, provided the reduced rate applies to a clearly defined part of the supply and fiscal neutrality is maintained. Member States may therefore apply different VAT rates within a single economic supply, as long as similar services sold separately by other businesses are taxed consistently.
Comment: While the Judgement is not binding in the UK, the higher courts are required to “have regard for the CJEU's decisions”. The first time the UK saw the concept of a single supply being taxed at more than one rate was in respect of Caravans in the case of Talacre Beach. The caravan was zero rated but the removable contents sold as part of the single supply could be taxed at the standard rate, because the UK law draws this distinction.
A few years ago, it was rumoured HMRC would invoke this principle to tax the professional services element of a zero rated residential design and build contract, but it seems to have been dropped, and we have not heard anything on this subject for a long time.
Case C-527-24 Judgment - Harry & Associes – whether technical error invalidates a VAT refund claim
A French company’s VAT refund claim in Italy was rejected after a technical error corrupted its electronically submitted file. Italian authorities treated the unreadable request as non‑existent and refused both the refund and any right to challenge their inaction. The CJEU ruled that Italy cannot deny a taxpayer both the right to a refund and access to judicial review solely because of a technical malfunction. If the request was received, it must be treated as submitted, taxpayers must be allowed to correct defects, and they must have effective legal remedies.
Comment: Italy has a reputation for being “difficult” when it comes to refund claims, so this clarification from the CJEU is welcome.
Case C-521/24 Judgment – Aptiv Services - whether invoices received late support VAT claims
The CJEU has ruled that a taxpayer cannot be refused input VAT deduction merely because invoices were received late. In the Aptiv case, Hungary had denied deductions for intra‑Community acquisitions from earlier years, but the Court held that the right to deduct being fundamental, cannot be lost due to procedural timing issues if the taxpayer acted in good faith, stayed within the limitation period, and the tax authority had all necessary information. Anti‑fraud rules must be proportionate and must not undermine VAT neutrality.
Comment: The judgement confirms that the UK rules on late invoicing would be compatible with EU law.
Other news from HMRC
Effectiveness of penalty suspension
HMRC commissioned research into how effective penalty suspension is for taxpayers who make careless errors.
While participants saw suspension as fair for genuine mistakes and valued conditions that support better compliance, they felt the term “careless” was accusatory and that the process suffers from poor communication and limited caseworker engagement.
Two alternative policies automatic suspension without conditions and issuing a caution instead of a penalty were viewed as simpler or fairer but unlikely to improve behaviour.
Overall, respondents preferred retaining the current suspension system but improving its clarity, communication, support, and educational focus. The report effectively recommends keeping and enhancing the suspension regime, though government timelines for wider behavioural penalty reform remain unclear.
Temporary medical staff following Isle of Wight FTT decision
HMRC have responded to enquiries about the implications of the FTT decision in Isle of Wight (IoW) Trust, and say it creates a complex cross-departmental piece of work, which makes it vitally important for HMRC to fully consider the impact across the whole supply market before we set out a clear and comprehensive policy.
They recognise the growing need to reach conclusions on the implications of the IoW decision. However, HMRC is still currently conducting a policy review and has reserved its position on these matters. Whilst this review is ongoing, it is not possible to provide a definitive interpretation of the current position or HMRC’s future intentions.
HMRC has engaged with stakeholders to better understand the operational realities and acknowledges taxpayer concerns. HMRC is committed to providing clear and comprehensive guidance at the earliest opportunity and will share further clarification as soon as the guidance is updated.