HMRC Policy paper: Budget 2025 document

Summary of VAT related points

✅ 1. Tour Operators’ Margin Scheme (TOMS) Reform

• Legislation will exclude private hire vehicle and taxi journeys from TOMS from 2 January 2026, except where ancillary to a wider travel package.
• Purpose: Prevent ride-sharing apps from exploiting TOMS to pay VAT only on margins instead of full fares.

✅ 2. VAT Relief for Business Donations to Charities

• From 1 April 2026, businesses donating eligible goods to registered charities will not need to account for VAT on those items.
• Applies to goods for onward distribution to people in need or for use in charity services.
• Value limits and exclusions (e.g., excise goods) will apply.

✅ 3. Combined County Authorities VAT Refunds

• Combined County Authorities (CCAs) created under the Levelling Up and Regeneration Act 2023 will be added to the list of bodies eligible for VAT refunds under section 33 of the VAT Act 1994.
• Effective from Royal Assent of Finance Bill 2025-26, covering purchases from 1 December 2025.

✅ 4. Mandatory E-Invoicing for VAT

• Mandatory electronic invoicing for all VAT invoices by 2029.
• Goal: Improve compliance, reduce late payments, and modernize VAT reporting.
• Government will set interoperable standards and provide guidance before rollout.

✅ 5. Removal of Customs Duty Relief for Low-Value Imports

• Budget confirms reform of customs treatment for low-value imports, removing relief that gave online retailers an advantage.
• Linked to VAT compliance for cross-border e-commerce.

Source gov.uk

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Budget: Changes made to VAT rules and processes

• VAT Relief for Business Donations to Charity: Starting 1 April 2026, businesses will receive VAT relief on goods donated to registered charities, aiming to reduce waste and support the circular economy. The relief applies to goods valued up to £100, and £200 for essential electrical items. Only registered charities are eligible for this relief.
• Changes for Private Hire Vehicle (PHV) and Taxi Services: From 2 January 2026, PHV suppliers will be excluded from the Tour Operators’ Margin Scheme (TOMS), meaning they must charge VAT at the standard rate of 20% on passenger fares. This decision follows a legal ruling and aims to secure significant annual revenue for public services. Operators in London must contract as principals, while those outside can still act as agents.
• Reform of the Motability Scheme: Effective July 2026, VAT relief on top-up payments for higher-cost vehicles will be removed, though relief will remain on weekly lease costs and vehicle resale for certain vehicles.
• E-Invoicing Requirement: Starting April 2029, all VAT invoices must be issued in a specified electronic format, with more details to be provided in the Budget 2026.
• Cross-Border VAT Grouping Clarification: From 26 November 2025, the UK will revert to its previous approach regarding cross-border VAT grouping, disregarding services between a UK head office and its overseas branch for VAT purposes.
• Deposit Return Scheme Simplification: The VAT liability for unreturned deposits will shift from producers to the deposit management organization, simplifying administration and reducing financial risk for businesses.
• Consultation on VAT for Social Housing: The government plans to consult on reforms to VAT rules to promote the development of land intended for social housing.

Source ICAEW

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