26 November 2025
UK Autumn Budget 2025 – Indirect Tax
The Autumn Budget 2025 announced several changes to the UK’s indirect tax landscape. While the UK continues to seek alignment with the EU in several areas, despite Brexit – such as e-invoicing, customs treatment of low-value imports, and the introduction of a Carbon Border Adjustment Mechanism (CBAM) – there is a notable divergence regarding the implementation of a major CJEU case around VAT grouping rules.
Below, we summarise the key indirect tax measures relevant to businesses. We recommend that businesses review their current VAT and customs arrangements in the light of these changes.
Cross-Border VAT Grouping – Policy Divergence
From 26 November 2025, the UK confirmed that they will apply its whole entity VAT grouping rules to the effect that the establishment in the UK forming part of the VAT group will be treated as part of the same entity for VAT purposes as any overseas establishment regardless of whether the overseas establishment is in a local VAT group and is treated as a separate taxable person locally.
This is a notable divergence from recent EU developments following the CJEU case of Skandia, particularly Ireland’s very recent announcement that it is moving away from whole entity cross-border VAT grouping, and the Netherlands doing the same in 2024. Businesses with cross-border structures should review their VAT group arrangements in the light of this clarification.
The Brief issued in this regard also provides details on how businesses that may have previously accounted for UK VAT (under the reverse charge) in line with the previous HMRC guidance, may submit an error correction notification to reclaim any VAT that was overpaid as a result of that treatment.
This development should be particularly beneficial to the financial services industry, where branch structures are common and which are partially exempt.
VAT on Private Hire Vehicle Services
From 2 January 2026, suppliers of private hire vehicle (PHV) and taxi services will be excluded from the Tour Operators’ Margin Scheme (TOMS), except where these journeys are supplied in conjunction with, and are ancillary to, certain other travel services as a package. In Bolt Services UK Limited, it had been held that TOMS applied, though HMRC have maintained that TOMS was not intended to cover these services.
Under TOMS, PHV/taxi platforms could account for VAT only on their margin, but this change means that VAT will now be due on the full fare, not just the margin, for PHV/taxi operators acting as principal. This change does not impact journeys where private hire vehicle operators or taxi operators act as a disclosed agent, or journeys provided directly by the driver to the passenger.
This measure is aimed at ensuring a level playing field, preventing ride-sharing platforms from benefiting from a reduced VAT rate intended for tour operators that resulted in a competitive advantage for platforms to the extent the drivers were not VAT-registered so that the input VAT restriction under TOMS did not cause loss. Operators should review their VAT accounting and pricing models ahead of the change.
This approach aligns with the EU’s VAT in the Digital Age reforms, which will introduce a deemed supplier regime for passenger transport from 1 January 2030.
VAT E-Invoicing Mandate
From April 2029, all VAT invoices for business-to-business and business-to-government transactions will need to be issued in a specified electronic format (e-invoicing). A detailed implementation roadmap is expected in the Budget 2026.
This move brings the UK in line with the EU’s digitalisation agenda and will require businesses to review and potentially upgrade their invoicing systems to ensure compliance.
Removal of Customs Duty Relief for Low Value Imports
From March 2029 at the latest, the customs duty relief for low value imports (goods valued at GBP135 or less) will be removed. All such imports will be subject to customs duty, with new import arrangements to be consulted upon. This aligns the UK with similar EU measures and is intended to support UK retailers by removing the competitive advantage enjoyed by some overseas sellers.
Other Updates
- VAT Relief for Charitable Donations – from 1 April 2026, a new VAT relief will apply to business donations of goods to charity for onward distribution or use in the delivery of charitable services. This is a welcomed simplification for businesses wishing to donate goods, reducing the VAT cost of charitable giving.
- VAT on Land for Social Housing – the government will consult on reforms to VAT rules to incentivise the development of land intended for social housing.
- Introduction of a Carbon Border Adjustment Mechanism (CBAM) – the government will legislate to introduce a CBAM from 1 January 2027. The CBAM is designed to prevent carbon leakage and ensure that imported goods are subject to a comparable carbon price to domestic products. Businesses importing affected goods should begin to assess their supply chains and carbon reporting capabilities.
- Remote Betting Duty Increase – remote Gaming Duty is to be increased from 21% to 40% (from April 2026) and General Betting Duty on remote (online) betting from 15% to 25% (from April 2027).
