Autumn Budget 2025
On 26 November 2025, the Chancellor of the Exchequer delivered the Budget 2025. There were a number of VAT issues covered, including the following:
VAT relief for business donations on goods to charities
The government will introduce a new VAT relief from April 2026 that removes the requirement for businesses to account for VAT when donating goods to charity for distribution to those in need or use in the delivery of their charitable services. The measure aims to encourage more charitable giving by reducing costs for businesses, helping surplus goods reach people in need. Safeguards will apply through per-item value limits, with higher thresholds for certain goods, and excise-duty items will be excluded. Following a 2025 consultation, the change will be legislated in the Finance Bill 2025–26. Constable VAT were pleased to be involved in this consultation process and welcome the Treasury and HMRC’s approach to this matter.
Revenue and Customs Brief 8 (2025): VAT Tour Operators’ Margin Scheme – supplies by private hire vehicle or taxi operators
From 2 January 2026, the government will change VAT rules to exclude taxi and private hire vehicle operators from using the Tour Operators’ Margin Scheme (TOMS), ensuring they must account for VAT on the full fare when acting as principal or an undisclosed agent. This follows court rulings that created uncertainty over whether operators could use TOMS. The new legislation clarifies that TOMS will no longer apply to taxi journeys except when these rides are genuinely ancillary to wider travel packages (such as hotel or flight bookings). Operators currently using TOMS must switch to normal VAT rules from January 2026, while traditional tour operators bundling taxi rides within travel packages remain unaffected.
Revenue and Customs Brief 7 (2025): Revised VAT grouping rules and the Skandia judgment
HMRC has withdrawn its earlier briefs containing guidance on the VAT treatment of intra-entity services following the CJEU Skandia judgment (C-7/13) and has issued an updated position effective 26 November 2025. HMRC now confirms that overseas establishments of UK VAT-grouped businesses, even those in EU states that do not operate whole entity VAT grouping, should still be treated as part of the UK VAT group. The revised position means many reverse-charge obligations previously applied are no longer required and VAT groups that accounted for VAT under the reverse charge mechanism in line with HMRC’s previous policy may now reclaim any overpaid amounts through the error-correction process.
E-Invoicing
The government will require all VAT invoices to be issued in a specified electronic format from April 2029 for business-to-business and business-to-government transactions. The government will work with stakeholders to develop an implementation roadmap to be published at Budget 2026.
VAT and Insurance Premium Tax: change to reliefs for qualifying motor vehicle leasing schemes
From July 2026, vehicles leased through the Motability Scheme, or through any equivalent qualifying schemes, 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. The changes will not apply to vehicles designed for, or substantially and permanently adapted for, wheelchair or stretcher users.
Updates to the penalty regime for VAT
The government will increase the penalties due for late payment of VAT from 1 April 2027. This will be legislated for via secondary legislation.
If you believe any of the above proposed or implemented VAT changes affect you or your business and wish to seek clarity how this may impact you, please do not hesitate to contact us and Constable VAT would be pleased to advise on any VAT related matters.
Please note that this blog is intended to provide a general overview of the subject. No liability is accepted for the opinions it contains or for any errors or omissions. Constable VAT cannot accept responsibility for loss incurred by any person, company or entity as a result of acting, or failing to act, on any material in this blog post. Specialist VAT advice should always be sought in relation to your particular circumstance.