Weekly VAT News

Budget 2025

On 26 November 2025, the Chancellor of the Exchequer, Rachel Reeves, presented her Budget 2025. The Weekly VAT News Budget Special highlighted the VAT and indirect tax measures of wider interest, but there were a number of other indirect tax announcements, including the following. Air passenger duty rates will increase from 1 April 2027 in line with RPI. HM Treasury issued a response to the consultation on the reform of APD for private jets, confirming that from 1 April 2027, the higher rate of APD will be extended to all private jets over 5.7 tonnes. Climate change levy main rates will increase from 1 April 2027 in line with RPI. HM Treasury issued a response to the consultation on the treatment of electrolytic hydrogen in CCL and the changing energy landscape, confirming that electricity used in electrolysis to produce hydrogen and natural gas used as a source of CO2 to produce sodium bicarbonate will be exempt from CCL. Landfill tax rates will increase from 1 April 2026, for the standard rate by RPI, and for the lower rate by the cash amount of the increase in the standard rate. HM Treasury issued a response to the consultation on reform of landfill tax, confirming that there will not be a transition to a single rate of tax by 2030, and that the exemption for quarries with disposal permits will be retained. The plastic packaging tax rate for 2026-27 will increase in line with CPI, and the government will consult in early 2026 on the introduction of mandatory certification for mechanically recycled plastic packaging for businesses to claim an exemption. Legislation will be included in Finance Bill 2025-26 to allow a mass balance approach and remove pre-consumer waste as a source of recycled content. The Soft Drinks Industry Levy will be amended to reduce the threshold at which SDIL applies and remove the exemption for milk-based drinks. Details of the indirect tax measures from Budget 2025 can be found on TaxScape. A recording of our Budget Dbriefs webcast is available to watch on demand. (Contact: Andrew Clarke)

RCB 7 (2025): Revised VAT grouping rules and the Skandia judgment

As part of the Budget 2025 measures, HMRC published Revenue and Customs Brief 7 (2025) on revised VAT grouping rules of overseas establishments of businesses which are VAT grouped in the UK following the Skandia judgment. Under the CJEU’s 2014 judgment in Skandia, the Swedish branch of an overseas head office was part of a Swedish VAT group, and therefore a single taxable person, with the US head office treated as a separate person, and not a member of the VAT group. Following Skandia, HMRC issued three Revenue and Customs Briefs setting out their position that UK businesses with branches or head offices in countries that applied Skandia were required to treat certain intra-entity supplies as taxable for UK VAT purposes, and to account for VAT under the reverse charge. RCB 7 (2025) sets out HMRC’s revised position, as from 26 November 2025, that overseas establishments of a business that is a member of a UK VAT group should also be treated as part of that UK VAT group, even if that overseas establishment is located in an EU member state that operates an ‘establishment-only’ VAT grouping regime, as per Skandia. HMRC acknowledge that some VAT groups may have accounted for the reverse charge under the previous guidance, and invite affected businesses to submit error correction notifications to reclaim overpaid VAT.(Contact: Tom Jacobs)

RCB 8 (2025): VAT Tour Operators’ Margin Scheme — supplies by private hire vehicle or taxi operators

As part of the Budget 2025 measures, HMRC also published Revenue and Customs Brief 8 (2025) on supplies by private hire vehicle and taxi operators and the operation of the tour operators’ margin scheme (TOMS). PHVOs acting as principal have in some cases sought to account for VAT under TOMS. HMRC consider that TOMS should not apply to PHVOs, and the issue is subject to litigation, with HMRC’s appeal against the Upper Tribunal’s decision in Bolt Services Ltd to be considered by the Court of Appeal in May 2026. HMRC have now announced that legislation will be introduced to exclude suppliers of private hire vehicle and taxi journeys from TOMS, except where the journeys are supplied in conjunction with, and ancillary to, certain other travel services, namely accommodation and certain passenger transport services. The legislation will apply to supplies made on or after 2 January 2026. (Contact: Donna Huggard)