Autumn Budget 2026
On 28 October 2026, the Chancellor of the Exchequer delivered the Budget 2026. There were a number of VAT issues covered, including the following:
VAT on cross-border services supplied by overseas businesses
Perhaps the most interesting VAT specific change from the Budget 2026 is that from April 2027, the reverse charge on cross-border supplies of services will be restricted to VAT-registered businesses. Currently, if a non VAT-registered business receives supplies of services from overseas suppliers, in most cases, the value of the services counts towards that business’ taxable turnover for VAT registration purposes and the overseas supplier has no UK VAT obligations. This means that certain businesses with significant costs incurred from overseas suppliers may have to VAT register even if they are only making VAT exempt supplies. From April 2027, where overseas providers make supplies of services to non-VAT registered UK businesses, they will generally be required to account for VAT in the normal way. This will be introduced through legislation in Finance Bill 2026-27.
The implication is that certain UK established businesses may no longer trigger a compulsory VAT registration requirement as a result of reverse charge supplies; however, there should be an increased number of overseas suppliers registering for VAT in the UK. Previously, the reverse charge was a simplification to avoid the situation of overseas businesses being required to register in the UK for UK VAT.
For VAT registered UK businesses there will be no change in how the reverse charge will apply; however, there will be an impact for businesses VAT registered only as a result of reverse charge supplies and overseas businesses. The exact details are yet to be seen.
VAT on domestic electricity: temporary zero-rate extended
The temporary VAT zero-rate for domestic electricity, effective since 1 October 2026, will be extended for a further three months, to 1 July 2027.
VAT liability for private hire vehicle operators
Another major VAT development from the recent budget is that the government will deem the larger private vehicle hire operators with annual fare turnover above a certain threshold liable for 20% VAT on the full value of their fares from 2 January 2028. The government will shortly publish a consultation to confirm the level of this threshold, with £50 million annual fare turnover as the lead option, and to support final policy design and implementation.
VAT on public electric vehicle charging
The government will introduce legislation in Finance Bill 2026-27 to clarify that electricity supplied through publicly accessible, and workplace electric vehicle charging points is subject to 20% VAT and is not considered domestic use for the Climate Change Levy. The legislation will take effect from 1 November 2026.
VAT collection by online marketplaces extended to UK sellers
From October 2027, the VAT Online Marketplace (OMPL) rules will be extended to UK businesses meaning that online marketplaces will be responsible for collecting VAT on sales by UK VAT-registered businesses and any other UK business with a minimum annual sales threshold per platform of £90,000. The rules will not apply to non-business (i.e. personal) sales, second-hand goods, or business-to business transactions.
VAT relief on land sold to registered social housing providers
The government will implement a zero-rate of VAT for land sold to registered providers of social housing (relevant Housing Associations). This will be introduced through secondary legislation in early 2027 and take effect from 1 April 2027.
VAT invoices: mandatory electronic invoicing
From 1 April 2029, the government will require VAT invoices to be issued in a specified electronic format and has published an implementation roadmap setting out the key elements of the e-invoicing regime. By April 2028 the government will provide full details on the policy and technical design of e-invoicing.
New zero rate of VAT for donated medicines
The government will introduce a new zero-rate of VAT for medicines donated in qualifying circumstances, including through the Early Access to Medicines Scheme and other early access arrangements, and in connection with clinical trials or receiving continued treatment following a clinical trial. The zero-rate applies to qualifying donations made on or after 23 June 2026.
VAT treatment of medical deputies and temporary staffing
The government will amend Group 7 of Schedule 9 to the VAT Act 1994 to restore the tax treatment of medical deputies to its previously intended position from 1 May 2027. This will be introduced through legislation in Finance Bill 2026-27. This follows HMRC’s loss in Isle of Wight NHS Trust v HMRC , [2025] UKFTT 1114 (TC), where the Tribunal concluded HMRC’s policy that this was standard rated was incorrect. Perhaps this will be a growing trend – if the courts determine HMRC’s approach to be wrong the law will be changed to make HMRC’s view correct.
Mandatory direct debit arrangements for VAT liabilities
The government will require taxpayers to set up a direct debit instruction for VAT liabilities from April 2029. Businesses will continue to be able to use other payment methods to pay their VAT liability before a specified cut-off date. The direct debit instruction will be used to collect any unpaid balances.
Revert to reduced rate on energy saving materials (ESMs) as planned and include heat batteries in scope
In addition to the energy saving materials (ESMs) reverting back to the reduce rate of VAT, the government will add heat batteries to the list of materials that qualify for the reduced rate of VAT of 5% applying to energy saving materials from 1 April 2027, when installed in residential accommodation and charitable buildings.
Tour Operators’ Margin Scheme (TOMS)
The government has published a call for evidence seeking views on how the Tour Operators’ Margin Scheme is currently working and options to change, improve and simplify the application of VAT to travel services.
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.