VAT newsletter – January 2026

Don’t count your chickens, unless they are sold as hot food – that’s the lesson retail giant WM Morrison Supermarkets learned recently when they found themselves in a flap over zero-rated supplies of food.

It seems rotisserie chickens have been added to the VAT controversy of Jaffa Cakes and pasties past as Morrisons claimed its chickens cooked in store and allowed to cool slightly before sale made them zero-rated for VAT purposes.

While the cooked chickens were above ambient temperature at the time of supply, the supermarket claimed they did not “fall foul” of any of the five hot food tests set out in government legislation.

The court disagreed, saying the packaging kept the chickens warm and therefore were sold for consumption as hot food. The packaging also clearly presented them as hot takeaway food and so VAT must be charged.

The moral of the story? If it’s dressed as hot food, HMRC won’t let it fly under the VAT radar.

What’s in the courts

Maintenance charges cannot be hidden in the rent

Places for People Homes Limited, which provides maintenance services to blocks of flats, tried to argue that those maintenance services could be wrapped into the VAT-exempt residential rent.

However, the courts saw it differently and ruled that the services were supplied to the landlord, not the residents and that they were separate and taxable, not ancillary to the lease.

This decision puts a question mark over HMRC’s long-standing concession allowing maintenance to be included in exempt rent – watch this space.

Denied claim for VAT on share sales

Hotel La Tour Ltd sold shares in a property company to raise money for a new hotel in Milton Keynes. They tried to reclaim VAT on the sale costs, saying the money was used for future taxable business.

But, HMRC argued that the VAT related most directly to the exempt share sale, not the future hotel.

The Supreme Court sided with HMRC and the VAT claim was therefore denied.

News from HMRC

International branches: good news

HMRC has accepted that charges between different branches of the same business (even in different countries) should not have VAT added, if they are part of the same legal entity.

The reverse charge no longer applies — and HMRC is inviting repayment claims. A rare pre-Christmas gift!

TOMS takes a detour

Following the Budget, HMRC confirmed that taxi and private hire journeys will be excluded from the Tour Operators’ Margin Scheme (TOMS), unless they are genuinely ancillary to other travel services.

The change applies from 2nd January 2026.

Locum Doctors exempt after all

HMRC has changed course on temporary medical staff following a recent case in court. The exemption for medical deputies will now apply to staff supply, not just medical care, covers locum doctors, not just out-of-hours GPs.

Refunds of overpaid VAT may now be available, with updated guidance promised during 2026.

Any questions? Get in touch.

Adam Lloyd