Autumn Budget 2026: VAT changes
If you sell through a marketplace, buy services from abroad, or supply the UK from overseas, your VAT position may change in 2027.
While Autumn Budget 2026 was quiet on VAT rates, it was busier beneath the surface, with a series of measures that shift the liability for VAT onto whoever is best placed to collect it, including the largest private hire operators.
There was welcome news for registered providers of social housing, and the government has moved to reverse tribunal decisions it lost over the past couple of years on locum doctors and public EV charging.
Reverse charge on services
The reverse charge on services purchased from overseas is in essence a ‘distortion’ provision aimed at restoring balance between UK suppliers of services that need to charge VAT and non-UK suppliers of services that generally do not.
There has always been a gap here, that UK businesses not registered for VAT either:
- Do not need to account for VAT on the reverse charge
- Do not recognise that their reverse charge purchases count towards the VAT registration threshold of £90,000
The Government intends to plug this gap by making overseas suppliers liable to register and account for VAT when they supply services to non-VAT-registered UK businesses.
The provision will come into force in April 2027. The Government expects to collect an additional £70m-75m of VAT with this provision.
Non-UK businesses supplying services to UK businesses therefore have five months to prepare for this change.
Online marketplaces
The online marketplace rules for VAT will be extended to UK businesses.
These rules, which came into force on 1 January 2021 only applied, until now, to overseas sellers to UK consumers. From October 2027, online marketplaces will need to account for VAT on sales by UK businesses selling over £90,000 annually on their platform.
This is a separate test to the VAT registration threshold, meaning VAT registered businesses may still need to account for VAT on their sales, if their sales on a particular platform are below £90,000.
It will be important for sellers through online marketplaces such as Amazon and eBay to scrutinise VAT settlement reports issued by the platform.
B2B transactions, personal sales and second-hand goods will not be captured by the new provision.
Domestic electricity
As widely predicted, the temporary zero rate on qualifying supplies of electricity (i.e. to households, for charities’ non-business use and de minimis supplies of electricity) will be extended for three months to July 2027. The ‘relief’ is also expected to apply in Northern Ireland from April 2027.
Zero rate for land sold to registered providers of social housing
A zero rate on land sold to registered providers of social housing is intended to come into force on 1 April 2027.
Currently, a developer selling to a registered provider must wait until ‘golden brick’ stage with construction above foundation level to benefit from this treatment. Otherwise, the developer would have the option to make an exempt sale of land (and incur an input VAT cost) or to opt to tax the land (which could leave the registered provider with an input VAT cost).
Details such as whether and in which instances a clawback charge may apply if the land is subsequently used for market housing will be important. We expect to have further clarity on the details of the provision early in 2027.
Medical deputies
From 1 May 2027 an adjustment to the healthcare VAT exemption will be made to “restore the VAT treatment of medical deputies”. In 2025, the First-tier Tribunal decided against HMRC, that the exemption applied not only to deputies for a specific registered person (such as overtime cover for a specific doctor), but to persons “of a defined type” (e.g. doctors, generally) but to locum medical staff broadly.
On the basis that this is contrary to the “intended position”, the Government intends to amend the law with effect from 1 May 2027.
Zero rate for donated medicines
A new zero rate will apply to donated medicines in qualifying circumstances. The zero rate will apply, retrospectively, to qualifying donations from 23 June 2026.
Businesses that have accounted for deemed-supply VAT on qualifying donations since 23 June 2026 may wish to submit a claim for overpaid VAT once the legislation enters into force.
VAT on public EV charging
HMRC has an existing, published policy that supplies of electricity for recharging EVs in public places are VATable at 20%. Earlier this year, the First-tier Tribunal had decided in Charge My Street v HMRC that the reduced rate in respect of low-volume supplies may apply. The Government has decided to explicitly close this gap of interpretation with effect from 1 November 2026.
E-invoicing
From 1 April 2029, VAT invoices will be required to be issued electronically. The Government has committed to publishing further details on the policy and on technical specifications by April 2028.
Direct debit
VAT-registered businesses will be required to arrange a direct debit to pay their VAT liabilities from April 2029. While payment may still be made via other methods (eg bank transfer) before the due date, any remaining balance will be collected by HMRC by direct debit by the applicable deadline.
Private hire vehicle operators
The Government will deem larger private hire vehicle operators with fare turnover above a certain threshold (yet to be specified) to be liable for 20% VAT on the full value of their fares.
This measure removes the distinction between London/rest-of-England for the largest operators by deeming them to supply the fare as principal wherever they operate, while leaving the agency model available for operators below the threshold.
The measure is expected to come into force on 2 January 2028 after a public consultation has been held to determine the level of the threshold.
Tour operators margin scheme (TOMS)
The Government has issued a call for evidence (CoE) in respect of TOMS alongside the Budget. The CoE is broad in nature, asking:
- Whether TOMS is still fit for purpose
- Whether TOMS is distortive
- What the impact would be of withdrawing TOMS
- Whether the scheme could be improved
- Views on travel services made outside of TOMS
In the CoE, the Government’s initial thoughts are that, since leaving the EU, the UK has no technical need for TOMS and the travel sector could, in principle, function equally well applying “normal VAT accounting rules”. Since UK tour operators are familiar with the scheme, the Government wishes to better understand the industry’s views on the scheme and on either reforming or withdrawing it.
Machine games duty (MGD)
MGD on machine games with stakes of over £1 or prizes of over £100 will be increased from 20% to 25% with effect from 1 April 2027.
There will also be a change to the liability to MGD for suppliers of supplier-owned machines, intended to take effect from 1 April 2028 after a 12-week consultation (which ends on 20 January 2027).
Air passenger duty (APD)
The rate of APD will increase in line with RPI from 1 April 2028.
Alcohol duty
Alcohol duty will be increased in line with RPI and Small Producer Relief will be increased (relative to the main rates) from 1 February 2027.
Soft drinks industry levy (SDIL)
SDIL will be uprated in line with the consumer price index plus one fifth of the ‘catch-up’ increment on 1 April 2027.
How BKL can help
We understand the pressure that comes from managing VAT and its complexities, particularly in property, financial services, healthcare, education and not-for-profit.
Our specialists’ role is to help you with that burden so that you can focus on the things that matter most to your business.
For a chat about how the Budget announcements affect you and your business, get in touch with Luigi using the form below.
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