VAT and other indirect taxes changes in 2026

• The Government has legislated to exclude private hire vehicle operators from the UKs Tour Operators Margin scheme from 2 January 2026, except where they supply as part of wider travel services. The position prior to 2 January 2026 is that the Court of Appeal in the Bolt Services litigation has confirmed TOMS cannot be used by such operators. Bolt Services is applying to appeal the decision to the Supreme Court, with over £1.5bn of tax at stake in related appeals, including Uber.

• Remote Gaming Duty increases to 40% from 1 April 2026.
• Bingo Duty will be abolished on 1 April 2026.
• VAT treatment of business donations of goods to charity: a new relief excludes donated business goods from the deemed-supply VAT rules from 1 April 2026.

From 25 June to 1 September 2026, a temporary reduced rate of VAT (from 20% to 5%) will apply to children's menu meals in restaurants and family leisure activities. The temporary reduced rate applies across England, Wales Scotland and Northern Ireland and will apply to

• Children’s and family tickets for cinema, theatre, exhibitions, shows and concerts (but not sporting events)
• Admission tickets — for both children and adults — to attractions such as amusement parks, fairs, circuses, museums, zoos, adventure parks, soft play and observation attractions
• Children’s meals served in restaurants for consumption on the premises

Qualifying children’s meals are defined as meals served from a children’s menu and marketed, presented and priced as children’s meals. Takeaway meals will not qualify. Qualify admission tickets must be to qualifying attractions (i.e. ones that are suitable for families with children) but adult tickets will qualify for relief even if there is not a child in the party.

It is up to businesses whether they pass all or part of the VAT saving on to customers by reducing prices but this is clearly what the Government expects to happen.

Capital goods scheme

• From 29 July 2026, computers and computer equipment will be removed from the scope of the Capital Goos Scheme (CGS).
• In addition, the CGS expenditure threshold for land, buildings and civil engineering works will increase from £250,000 to £600,000 (both exclusive of VAT). The rules for aircraft, ships, boats and other vessels remain unchanged.
• Projects where relevant capital expenditure has already been incurred before 29 July, will continue to be subject to the existing CGS rules, including the old £250,000 threshold.

Other changes

• VAT will be applied to advanced ‘top up’ payments for all new Motability car leases from July 2026.
• From 1 July 2026, the standard 12% Insurance Premium Tax rate will apply to most vehicle insurance policies under the Motability scheme.
• Low value imports into EU countries: from 1 July 2026, there will be a default duty charge of 3 Euros on each parcel where the value of the goods is below 150 Euros. This change effectively removes the de minimis relief, as an interim measure, ahead of a new EU wide electronic customs system in 2028, where duty will be payable under basic or optional simplified rules.

• There will be a zero rate for domestic electricity from 1 October 2026. The existing 5% rate will remain for gas and heating oil. The new zero-rate relief will also apply to deemed domestic usage for small supplies, by businesses not registered for VAT, as well as use by residential homes and charities. 
• A Vaping Products Duty will be introduced from 1 October 2026. The duty, an excise tax, will be at a flat rate of £2.20 per 10ml vaping liquid, accompanied by an equivalent further one-off increase in Tobacco Duty to maintain the financial incentive to switch from tobacco to vaping.
• The one-off tobacco duty increase (£2.20 per 100 cigarettes or 50g of other tobacco) will take effect on 1 October 2026, in addition to the annual RPI plus 2% increase, to maintain the price gap between vapes and cigarettes.
• In the 2026 Budget, the Government has committed to publish an implementation timetable for mandatory electronic invoicing for all VAT invoices by 2029 – see below.

• It is likely that the EU will introduce a €2 per consignment administration charge for low value imports to consumers, to compensate member states for the extra costs associated with such parcels. This charge will be in addition to the customs duty due.

• The government is consulting on the design of a new Mayoral power to create these levies.

• Find out more

• A consultation on reform of the relevant VAT rules ‘to incentivise development’ has been published. The Government is suggesting introducing a new zero rate for the sale of land for social housing from a future date.

• HMRC has consulted on proposed software standards to prevent electronic sales suppression and help ensure businesses report sales accurately.

• The government plans has consulted on the idea of requiring certification to claim PPT exemptions for mechanically recycled plastics.

• The government is to consider mechanisms such as mandatory direct debit to ensure prompt payments.

• The government will consult on strengthening the notification regime (ie penalties).

• The government has consulted on draft legislation requiring taxpayers to correct errors as soon as they are discovered. There is also a proposal on a new power to issue a ‘Customer Correction Notice’, which requires the taxpayer to check their position and either correct the inaccuracy or explain why no correction is needed.

• This Government has consulted on a new mandatory registration for customs intermediaries who submit customs declarations on behalf of businesses.

From 1 January 2027, businesses that import over £50,000 of aluminium, cement, fertiliser, hydrogen and iron or steel over a 12-month period will be subject to a new UK CBAM charge. This is a 'green tax' to ensure that carbon intensive goods that are imported into the UK face a comparable carbon price to that paid by UK manufacturers producing the same goods. Importers will have the option to pay a default rate by imported goods type or a rate based on their actual emissions. A charge on indirect emissions will be deferred until at least 2029. Read more about EU CBAM legislation. 

HMRC has consulted on a proposal to extend current online marketplace (OMP) VAT liability rules to sales on Online Marketplaces (OMPs) by UK based businesses when their goods are situated in the UK at the point of sale. This would include apps that deal with food deliveries and the changes extend the existing rules applying to goods sold by overseas based businesses.

Remote betting duty will rise to 25% from 1 April 2027 although duty on remote horserace betting will remain at 15%.

The Government carried out a consultation in 2025 on its proposed move towards mandatory e-invoicing in the UK (you can view BDO’s response here). At the 2025 Budget, it announced the plan would go ahead to mirror a worldwide trend towards e-invoicing, and it is expected that the UK rules will be aligned to the commonly adopted rules within the EU and other major trading jurisdictions. More detail is expected from the UK government on the UK’s roadmap in 2026 to plan to move to full adoption in 2029.  

In the 2025 Budget, the Government announced proposed changes to the SDIL to be implemented from 1 January 2028, including:

• The current lower threshold at which SDIL applies will reduce from 5g of total sugars per 100ml to 4.5g of total sugars per 100ml.
• The current exemption for milk-based drinks with added sugar will be removed - this will impact prepackaged milkshakes and lattes. However, ‘open cup’ milkshakes prepared on-site will remain out of scope of SDIL, as will plain cow’s milk and other milk drinks without added sugar. A ‘lactose allowance’ will be introduced to account for naturally occurring sugars in milk when calculating the SDIL liability in this area.
• Milk substitute drinks without added sugar will remain outside the scope of SDIL – including plant-based drinks that only contain sugars derived from their ‘core’ ingredient.

In late 2022, the European Commission launched its long-awaited proposals to modernise VAT rules within the EU, collectively known as the 'VAT in the Digital Age' package. The final arrangements, now agreed between all member states, will have a significant impact on UK businesses and businesses trading across the EU.

The VIDA proposals consist of three key Pillars; Digital reporting and E-invoicing, the Platform economy and the Single VAT Registration. Under the final agreement, ViDA will be introduced in stages between 2028 to 2030, with a final convergence to the EU e-invoicing standard by 2035. Please see our article on digital VAT in the EU.

Currently, UK buyers making Low Value Imports (LVIs) - goods with a value of £135 or less being imported into the UK - can claim a customs duty relief, although VAT is due on these goods.

The rapid rise in cross-border e-commerce means some online retailers are being placed at an unfair advantage due to the UK’s customs duty relief for low-value imports of, largely, Chinese goods. The Government has decided to reform existing customs arrangements for LVIs (as the USA has done and the EU is planning). The aim is to remove relief for LVIs by October 2028, and the Government is consulting on various options.

Colchester Institute Corporation had a long running dispute with HMRC relating to the provision of education by a further education college which concluded in the Court of Appeal which refused the HMRC appeal and found that the supplies of education were business (exempt) rather than outside the scope of VAT which in the very narrow circumstances of the Colchester dispute had the potential for advantage. The Court of Appeal, as the FTT and UTT had, concluded that the supplies of education and/or vocational training were for consideration, and thus were a business activity for VAT purposes and exempt from VAT.

HMRC announced in Revenue and Customs Brief (RCB) 03/26 that it is not appealing the ruling of the Court of Appeal and will consider the terms of the judgment in consultation with relevant stakeholders before making any changes. HMRC said any policy change will be announced by way of a further RCB accompanied by updated guidance. HMRC also said that taxpayers could continue to apply existing reliefs for fuel and power and construction at present – such reliefs depend on the organisation having non-business, not business activities, therefore, there may need to be wider changes made to avoid considerable extra costs in the sector.

Bolt Services UK Limited - VAT treatment of private hire vehicles

This dispute concerns whether VAT is able to be declared using the Tour Operators Margin Scheme (TOMS) for ‘on demand’ private hire journeys booked through an online app.

The Court of Appeal disagreed with the earlier decisions of the FTT and Upper tribunal and decided that Bolt could not use the TOMS scheme, because TOMS was available only where the services were identical or at least comparable to those supplied by travel agents or tour operators. The Court concluded that this was not the case and the earlier courts had erred in considering the application of the scheme should be at a high level. Bolt is to request an appeal in front of the Supreme Court, with considerable sums at stake in the sector for supplies up to 2 January 2026 (when UK law was changed to remove the use of TOMS from these type of on-demand operators). Bolt’s appeal is worth many millions but a near identical appeal by Uber has seen Uber deposit £1.5bn with HMRC to maintain its appeal, which is stayed until the final outcome in Bolt Services is determined.

The Court of Appeal is due to hear this case on TOMS related to holiday accommodation provided in the UK to corporate and leisure travellers, though the status of the appeal is in doubt due to the insolvency of the taxpayer. Sonder leased self-contained apartments from third-party landlords and sublet the apartments to travellers for different periods from a single night to a month or more. Sonder provided internal fixtures and some furniture and utensils where needed, undertook internal repairs, and furnished 60% of the properties. The accommodation was booked online and Sonder had no staff on site; there was no check out procedure as would be the case for a hotel.

Sonder accounted for VAT on the basis that its supplies fell within the scope of the TOMS, and so they accounted for VAT on the margin. When the case reached the FTT, it agreed that TOMS applied. However, UTT agreed with HMRC that the supply by the landlord was not ‘on-supplied’ by Sonder without being 'materially altered or processed' – so a key requirement of TOMS was not met.

The FTT decided the supplies of public EV charging should have been charged at the 5% rate of VAT because they fell within de minimis rules for supplies of electricity, thus were deemed to be qualifying supplies under the law. However, the FTT decided that, where supplies were made via third party apps, the lower rate did not apply to Charge My Street. The outcome of the FTT appeal is contrary to HMRC’s publicly stated policy, which is that 20% VAT applies for charging outside the home. HMRC are appealing the liability decision to the Upper tribunal and it is likely Charge My Street will dispute the FTT findings regarding third party apps, which limits any benefit to them. There is considerable interest in the EV sector in this dispute.

The dispute is regarding KFC ‘meal deals’ which included ‘dip pots’, sauces to be used with the chicken/fries element of the meal deal. Queenscourt argues that the dip pots are to be treated as separate supplies and zero rated, but HMRC argues that the pots are ancillary to the chicken/fries and are thus standard rated.

The FTT refused the appeal by Queenscourt, agreeing that the supplies were multiple supplies but that, nonetheless, the dip pots were still ancillary to the standard rated hot food items and followed the same liability. However, the Upper Tribunal allowed an appeal by Queenscourt. The Upper Tribunal concluded that, where there is a multiple supply, it is not possible to treat one of those items as ancillary to another - each must be looked at separately, thus the dip pots were zero rated. HMRC is attempting to appeal the decision to the Court of Appeal and the litigation will be followed closely by food retailers in particular.

After a FTT and Upper tribunal preliminary hearing regarding the admission of evidence, the substantive dispute in this substantial appeal in the VAT and food sector will be heard in 2026 or 2027. Healthspan have submitted two claims for overpaid output VAT for £56m.

Healthspan argues the food supplements are zero-rated as “food of a kind used for human consumption” under Group 1 Item 1 of Schedule 8 to VATA 1994. HMRC argue that supplements are not food, applying a test based on the view that an ordinary person would take. However, Healthspan is arguing for a definition based on the nutritional purpose or the nutritional content of the products. The outcome of this litigation will be closely followed by retailers and distributors of these products, which is a growing area in the food space.