Tuesday 28-10-2025 - 15:38

We met with HMRC last week, who confirmed they are looking to ‘resolve’ open cases with SUs relating to catering VAT now that our legal case is closed, and will be looking to undertake new VAT assurance visits across the sector.

We wanted to understand the scope and approach they will be taking for these cases and on VAT and other tax issues more generally with the sector.

Catering cases

HMRC let us know that any unresolved cases will be dealt with on a case by case basis, potentially involving a visit or just correspondence and virtual meetings.

If you have an unresolved catering case and haven’t had an email from HMRC please let us & HMRC know – as they are concerned they have out of date contact details for some SUs as they haven’t heard back.

Regarding interest charged while assessments were paused due to the legal case – they have said if SUs were told this will be chargeable, it will be, and did not indicate there could be any movement on this. In terms of any penalties, they did say this again will be case by case – if the SU can show they took ‘reasonable care’ to follow the Concession as they understood it, that would be helpful. If they feel an SU has been ‘careless’, within the framework there are different options, some financial but starting at recommendations of tightening up approaches.

We therefore strongly advise that SUs who have catering in venues that also serve alcohol (and could in any way describe that venue as a ‘bar’) read our guidance created with Bates Wells, and discuss with your tax specialist about your SU’s specific circumstances.

VAT assurance visits

Going forward, HMRC have said they will be looking to reinstate their VAT assurance visits in 26/27, which haven’t happened for a while due to Covid. This will be looking at VAT treatment overall, but if other tax compliance risks are identified these would be also addressed.

They will do a pilot year of these visits to ascertain how often they continue them for future years, or whether other sorts of engagement are needed.

We have asked if HMRC can produce a ‘checklist’ for SUs of things they should prepare in advance and provide on the day for this process to go smoothly, which they have agreed to in principle.

Engagement going forward

We have explained we are open to engagement on behalf of the sector for mutual benefit, and HMRC seem to now be happy to engage with us.

They have explained this could look like regular meetings between NUS and HMRC, presenting at member events, facilitating webinars, sharing key messages, providing clarification of guidance & escalating policy issues which are affecting the SU sector, which we have welcomed.

HMRC’s Public Bodies Group has a dedicated representative bodies engagement team who we will begin working with.

HMRC have acknowledged that the customer experience of their helpline and generic email address correspondence can be frustrating, so they have offered to SUs the use of the public sector bodies mailbox from now on – which is direct to the team that deal with students’ unions.

If there is not an existing email protocol arrangement in place, HMRC will respond initially with a request for an email protocol agreement, but after that it should be straight forward.

If you have any questions or concerns about any of the above, feel free to get in touch with Charlotte or Peter from NUS Charity through uniondevelopment@nus.org.uk 

 

 

Background: NUS Charity’s catering VAT campaign against HMRC

In early 2020, Bates Wells’ tax consultant advised NUS Charity about VAT on SU catering. Later that year, in November 2020, we sought further input on escalating the issue with HMRC – possibly through a formal judicial review if necessary.

The issue arose because HMRC inspectors had begun challenging some SU venues that treated food sales as VAT exempt. HMRC operates a Concession (not legislation) that allows catering supplied by SUs to be treated as VAT exempt, as part of the wider exemption for education.

However, the Concession does not extend to supplies made in “bars”. This distinction made sense several decades ago when bars mainly sold alcohol and snacks (like nuts and crisps), but many SU “bars” or similar venues now operate more like cafés or multi-functional spaces, with roughly 70% of their sales being food. The Concession was outdated and being applied inconsistently by HMRC inspectors. The potential cost to the sector was estimated at around £5 million, based on information SUs supplied to NUS in 2021.

We knew the campaign and the legal work would cost – so NUS Charity fundraised just over £140,000 from SUs that joined the campaign group. NUS Charity also donated £5,000 itself to this initial campaign pot, and donated staff time towards the facilitation of the work.

Between 2020 and 2025, the legal costs of the VAT campaign were £188,895. We did also follow a separate legal process against HMRC’s decision to not engage with us as a body representing the SU sector, the funds of which we costed separately and ultimately won back.

The process & its associated costs

• Judicial review required exhausting internal remedies first.
  Before applying for judicial review (JR), HMRC’s internal complaints process had to be completed. This two-stage process, handled by HMRC in Newcastle, involved significant correspondence and long delays (acknowledged by HMRC in September 2021). The matter was eventually referred to HMRC Policy.
• Judicial review is front-loaded with costs.
  A JR can only challenge a specific decision and must be filed within three months of that decision. A pre-action letter must be sent before filing, and a judge must grant permission for the case to proceed. As a result, significant costs arise early in the process.
• HMRC’s conduct was slow and unhelpful.
  From February 2022 onwards, BW & NUS engaged with HMRC Policy to seek either agreement that the Concession should cover the catering element, a rewording of the Concession, or a formal decision suitable for challenge.
• The VAT position was legally complex.
  Students’ unions are not classified as educational establishments under VAT legislation. The Concession, as an extra-statutory arrangement, could be withdrawn by HMRC at any time, and its wording was open to interpretation. An opinion from tax counsel, Oliver Conolly KC (20 December 2022), concluded there was a reasonable prospect of success but recommended awaiting the outcome of HMRC’s policy review before proceeding further.
• Specialist tax advice carried high costs.
  Leading tax counsel often advise large corporate clients and charge accordingly. Discounts were negotiated wherever possible. For example, the opinion mentioned above took over three days to prepare, with a typical fee exceeding £15,000; this was reduced to £10,000 plus VAT. Bates Well’s own fees were also discounted.
• Evidence was difficult to obtain due to the financial risk
  Evidence was needed to show how SU bars operated, the proportion of food versus alcohol sales, and inconsistencies in HMRC’s treatment. Many SUs were understandably hesitant to participate, fearing backdated VAT charges.
• The VAT issue itself remained unresolved.
  HMRC continued to apply the Concession narrowly, treating many SU catering outlets as “bars”. Anglia Ruskin SU (ARSU) was identified as a potential test case to challenge this interpretation. After completing HMRC’s internal review process in July 2023, both a judicial review and a protective Tax Tribunal appeal were filed. The JR was lodged in February 2024 but permission was refused in May 2024. A renewed application followed, along with requests for clarity on HMRC’s definition of “bar” and past versions of the Concession. Further evidence from other SUs was also submitted. The permission hearing took place in February 2025 before Mr Justice Saini, who accepted the late evidence but ultimately refused permission to proceed.
• Post-litigation guidance was provided.
  After the conclusion of proceedings, NUS Charity received detailed advice on practical steps SUs could take to minimise the risk of having to charge VAT on catering, particularly when alcohol is sold.