Value Added Tax
Registration threshold
The VAT registration and deregistration thresholds last increased to £90,000 and £88,000 with effect from 1 April 2024. The March 2024 Budget stated that they would be frozen at these levels, but it did not say for how long. No changes or dates have been announced.
Electricity bills
The temporary zero-rating of domestic electricity bills has been extended for another 3 months to 30 June 2027. On the other hand, the government will pass a law to ensure that electricity supplied at public charging points for electric vehicles is not counted as ‘domestic’ (as it was held to be by a tax tribunal earlier this year) and is therefore subject to 20% VAT with effect from 1 November 2026.
Sales of land to housing associations
From 1 April 2027, sales of land to relevant social housing providers (e.g. registered Housing Associations) will become zero-rated. Where the seller has opted to tax the land, a Housing Association can cancel that option and require the supply to be exempt, but this can cause an input tax restriction for the seller which may cause the deal to fall through. Zero-rating the supply will remove a significant obstacle to such sales.
Reverse charge from abroad
When a UK business buys services from a UK supplier, it will normally pay VAT to the supplier and claim it back as input tax from HMRC. When a UK business buys services from a foreign supplier, the foreign supplier will not normally charge VAT in either country. Instead, the UK business is subject to a ‘reverse charge’: it has to account for output tax as if it had sold the service, and then claim it back if it is entitled to input tax. This stops businesses that cannot recover input tax obtaining an advantage by buying in services VAT-free from abroad. Such reverse charge services also count towards the £90,000 threshold for registering for VAT.
The government will introduce legislation to restrict the reverse charge from April 2027 so that it only applies if the receiving UK business is VAT registered. This change means that where a UK business customer is not VAT registered, the overseas supplier will be required to charge and account for UK VAT. Presumably this could require the overseas supplier to register for UK VAT, which they may be unwilling to do.
Locum doctors
The supply of temporary staff is usually subject to VAT, which is a problem for businesses that are exempt and therefore cannot recover input tax, including healthcare businesses. The UK law contains a provision that the supply of locum doctors is itself an exempt supply. HMRC recently lost a court case in which they argued that the law should not be applied because it was contrary to European law; the court held that the UK law had to be applied as it was written.
The Budget includes the announcement that the law will be changed with effect from 1 May 2027 to restore the ‘previously intended position’. Where a deputising service is responsible for providing medical care (i.e. it is responsible for the treatment of patients), it will continue to be exempt; however, where a business is only providing doctors to a healthcare business or NHS Trust which is responsible for care, it will have to charge VAT which the business will not be able to recover.
Online marketplaces
Where foreign businesses sell goods to UK consumers through an online marketplace, the marketplace is generally liable to account for VAT on the sale. From October 2027, this will be extended to sales made by UK businesses, even those that are VAT registered. This is intended to combat non-compliance with the VAT rules: presumably HMRC consider it easier to find and collect VAT from a large online marketplace than a large number of small suppliers who sell through those marketplaces.
The measure will not affect non-business (i.e. personal) sales, second-hand goods, or business-to-business transactions.
Private hire vehicles
The VAT treatment of taxis has been the subject of high-value court disputes over several years, with businesses such as Uber and Bolt claiming that they should only have to account for VAT on the difference between what the passenger paid them and what they paid to the driver. The courts have held that this is a possible answer, but only if the firm is acting as the driver’s ‘agent’ in arranging the ride – it depends on the contracts in place between the driver and the firm. Licensing regulations may determine what the contract must provide: in London, for example, the firm has to act as a ‘principal’, taking responsibility for supplying the ride to the passenger.
The Chancellor announced that ‘large’ taxi firms will be deemed to be acting as principal, and therefore subject to VAT on the whole fare, regardless of the contractual arrangements. There will be a consultation on the level and manner in which this will operate, with the intention that smaller taxi operators will still be able to charge VAT on an agency basis. A possible figure for ‘large’ has been mentioned: turnover of £50 million. The change is intended to come into effect on 2 January 2028.
E-invoicing
The Budget has repeated last year’s announcement that from April 2029, it will be a requirement to issue all VAT invoices in a specified electronic format. The government has published an implementation roadmap, which sets out the further details about e-invoicing and a timeline setting out when it will share further information and publish guidance.
Low value imports: customs duty
As announced last year, the government intends to remove the customs duty relief on goods imported into the UK valued at £135 or less, making them subject to customs duty. The Budget announced that this change is now intended to be brought in 6 months earlier than previously suggested, in October 2028.