Weekly VAT News

On 26 November 2025, the Chancellor of the Exchequer, Rachel Reeves, presented her Budget 2025. There were a number of VAT and indirect tax issues covered, including the following measures.

VAT

Private hire vehicle services

Suppliers of private hire vehicle and taxi services will be excluded from the scope of the tour operators’ margin scheme (TOMS) from 2 January 2026, except where these are supplied in conjunction with certain other travel services. The government also published a response to the Consultation on the VAT Treatment of Private Hire Vehicles and HMRC published Revenue and Customs Brief 8 (2025): VAT Tour Operators’ Margin Scheme — supplies by private hire vehicle or taxi operators, which explains the implications and guidance on the legislation.

Electronic invoicing

The government will require all VAT invoices, business-to-business and business-to-government, to be issued in a specified electronic format from April 2029. The government will work with stakeholders to develop an implementation roadmap to be published at Budget 2026.

Cross border VAT grouping

The government announced that it was clarifying the rules relating to operating cross-border VAT grouping from 26 November 2025 by reverting to the UK’s previous position. HMRC also published Revenue and Customs Brief 7 (2025): Revised VAT grouping rules and the Skandia judgment, confirming that HMRC now considers that an overseas establishment of a business VAT grouped in the UK should be treated as part of that VAT group, even when located in an EU member state that does not operate whole entity VAT grouping (i.e., as was the UK’s previous position).

This replaces the previous Revenue and Customs Briefs published following Skandia. HMRC acknowledges that some VAT groups may have accounted for VAT in line with the previous guidance and may now be eligible to reclaim overpaid VAT.

VAT treatment of business donations of goods to charity

New VAT relief will be introduced from 1 April 2026 for business donations of goods to charity for distribution to those in need or use in the delivery of their charitable services (i.e. in addition to goods donated for sale). HMRC also published a response to the Consultation on the VAT treatment of business donations of goods to charity, and a policy paper, VAT relief for business donations on goods to charities.

Motability Scheme

From 1 July 2026, vehicles leased through the Motability Scheme will be subject to 20% VAT on top-up payments which are made in addition to the transfer of eligible welfare payments for more expensive vehicles on the scheme. Insurance Premium Tax will also be applied at the standard rate of 12% for insurance contracts related to vehicles leased through the scheme.

Tax changes will not apply to vehicles designed for, or substantially and permanently adapted for, wheelchair or stretcher users.

HMRC also published a policy paper, VAT and Insurance Premium Tax: change to reliefs for qualifying motor vehicle leasing schemes.

Other indirect taxes

The government is removing the customs duty relief on goods imported into the UK valued at £135 or less, making them subject to customs duty from March 2029 at the latest, and will be consulting on implementing a new set of customs arrangements for these goods.

On gambling, Remote Gaming Duty will increase from 21% to 40% from 1 April 2026. A new remote betting rate will be introduced at 25% from 1 April 2027 within General Betting Duty. This new rate will not apply to self-service betting terminals, spread betting or pool betting. Remote bets on horseracing will be excluded from these changes and remain taxed at 15%. Bingo Duty will be abolished from 1 April 2026. HMRC published a response to the consultation on the Tax Treatment of Remote Gambling, and a policy paper, Changes to Gambling Duties.

The government is introducing Electric Vehicle Excise Duty (eVED), a new mileage charge for electric and plug-in hybrid cars, with effect from April 2028. Drivers will pay for their mileage on a per-mile basis alongside their existing Vehicle Excise Duty. Electric cars will pay half the equivalent fuel duty rate for petrol and diesel cars (3p), and plug-in hybrid cars will pay a reduced rate equivalent to half of the electric car rate (1.5p). The government has published a Consultation on the Introduction of Electric Vehicle Excise Duty (eVED), which will remain open until 18 March 2026.

The government will extend the temporary 5p fuel duty cut for a further five months, with the cut being reversed in three stages: 1p on 1 September 2026, 2p on 1 December 2026, and 2p on 1 March 2027. This will return rates to pre-March 2022 levels. The inflation increase for 2026-27 will not take place, with the government uprating fuel duty rates by the Retail Prices Index (RPI) from April 2027.

The Carbon Border Adjustment Mechanism will be introduced from 1 January 2027, however the inclusion of indirect emissions within the scope of CBAM will be delayed until 2029 at the earliest.

For further insights, please visit our Autumn Budget 2025 page. There will be a Dbriefs webcast on Thursday, 27 November 2025 at 12.00, during which our panel of experts will discuss the Budget’s key tax measures and their implications for business.