VAT, stamp taxes and other indirect taxes

VAT: revised VAT grouping rules and the Skandia judgement

HMRC has released Revenue and Customs Brief 7 (2025), confirming that the UK will be applying unconditional whole entity VAT grouping in the UK. HMRC has reversed its previous policy - set out in Revenue and Customs Brief 2 (2015), as well as Revenue and Customs Briefs 18 (2015) and 23 (2015) - and now considers that an overseas establishment of a business VAT grouped in the UK should be treated as part of that VAT group, even when located in an EU member state that does not operate whole entity VAT grouping.

HMRC's previous position followed from the CJEU's decision in Skandia America Corp (C-7/13). Under HMRC's 2015 policy, UK businesses were required to account for VAT under the reverse charge mechanism on certain intra-group services, specifically those provided to or by overseas establishments of a UK-established entity where that entity was part of a separate taxable person - ie if the overseas establishment was VAT-grouped in a member state that operated an 'establishment only' VAT grouping provision. This position has been reversed by Revenue and Customs Brief 7 (2025) and is no longer effective.

The update appears to have retrospective effect, as the Brief acknowledges that some VAT groups may have accounted for VAT in line with the previous (Revenue and Customs Briefs, and may now be eligible to reclaim overpaid VAT through the usual error correction notification procedure).

The updated policy will provide welcome clarity to businesses operating UK VAT groups which include overseas establishments, after a period of uncertainty as to how HMRC would look to apply the Skandia decision following the UK's departure from the EU. The Brief also represents an opportunity for affected UK VAT groups that have accounted for VAT under the reverse charge mechanism in line with HMRC's previous policy to submit an error correction notification and reclaim any overpaid VAT.

VAT: exclusion of private hire and taxi journeys from TOMS

The Autumn Budget introduces a significant change to the VAT treatment of private hire vehicle and taxi journeys, following recent litigation and ongoing uncertainty in the sector. From 2 January 2026, legislation will amend the scope of the Tour Operators' Margin Scheme (TOMS) to exclude suppliers of private hire and taxi journeys, except where these journeys are supplied in conjunction with, and ancillary to, certain other travel services such as accommodation or passenger transport. This measure is intended to provide clarity for operators and HMRC following the Upper Tribunal's decision in Bolt Services Ltd, which had found that such supplies (where the taxi operator acted as principal) could fall within the TOMS, contrary to HMRC's longstanding policy.

The legislative change will affect businesses that buy in and resell taxi or private hire vehicle journeys as principal, or as agents acting in their own name. The exclusion will not apply to journeys where operators act as disclosed agents, or where journeys are provided directly by the driver to the passenger (for example, a taxi hailed in the street). The exception to the exclusion allows TOMS to continue to apply where the journey is supplied as part of a wider travel package and is ancillary to a principal supply of accommodation or certain other passenger transport services. "Traditional" tour operators who include taxi or mini-cab journeys as part of such travel packages are not, therefore, impacted.  The definition of "taxi and private hire vehicle" is interpreted broadly by HMRC to include similar services, such as chauffeur-driven cars, and is not limited to road vehicles.

For affected businesses currently using TOMS for private hire or taxi journeys, normal VAT accounting rules must be applied from 2 January 2026. For the purposes of the TOMS annual adjustment, businesses may use 1 January 2026 as the cut-off date, even if this extends the financial year by one day.

In the interim, the Upper Tribunal's decision in Bolt remains in effect, subject to HMRC's ongoing appeal to the Court of Appeal. No further details were provided on transitional reliefs or administrative support for affected operators, but HMRC's policy paper confirms that VAT Notice 709/5 will be updated in due course. Businesses should monitor the progress of the Finance Bill and the outcome of the Bolt litigation for further developments.

VAT: new relief for business donations of goods to charity from April 2026

The Autumn Budget introduces a targeted VAT relief for businesses donating goods to registered charities, with effect from 1 April 2026. This measure is designed to encourage charitable giving by removing the requirement for businesses to account for VAT on eligible goods donated for onward distribution or use in a charity's services. The relief forms part of the government's wider ambition to support a fairer tax system and promote a more sustainable, circular economy, while helping charities deliver essential services.

Legislation will amend Schedule 4 of the Value Added Tax Act 1994 to create a new exception to the deemed supply rules for business goods donated free of charge to charities. The relief applies to goods within defined per-item value limits, with higher thresholds available for specified goods such as technology and household appliances. Certain goods subject to excise duty are excluded from scope. The legislation will also provide powers to uplift value limits and amend the list of goods eligible for higher thresholds. Businesses will need to confirm the bona fides of recipient charities, typically certified by the charity itself, but will otherwise benefit from reduced administrative requirements, as they will no longer need to calculate or pay VAT on eligible donations.

While the measure is not expected to have significant macroeconomic impacts, it is anticipated to indirectly benefit individuals and families who rely on charities for household goods, by increasing the volume of donations.

Modernisation of the stamp taxes on shares framework

The 2025 Budget introduces a reform to modernise the Stamp Taxes on Shares framework. The key change is the creation of a power allowing HMRC to make regulations for testing a new digital service.

This service will enable self-assessment and electronic payment of Stamp Duty and Stamp Duty Reserve Tax (SDRT) on the transfer of UK securities. The ultimate aim is to replace Stamp Duty and SDRT with a single tax (the Securities Transfer Charge), and to digitise and simplify the reporting and payment process. The changes are initially limited to the duration of the digital service testing and further details will be set out in secondary legislation in due course.

Stamp duty reserve tax: UK listing relief

The Chancellor has announced a new exemption from the 0.5 per cent Stamp Duty Reserve Tax (SDRT) for companies newly listing their securities on a UK regulated market. This exemption will apply for a period of 3 years from the date of listing and will cover all of the company’s securities, not just its shares. The exemption will also extend to depositary interests in a company’s securities, provided that the depositary interests (relating to the company’s shares) are newly listed.

The exemption does not apply to the 1.5 per cent SDRT charge (for transfers to depositary receipt systems or clearance services) or to transfers forming part of a merger or takeover involving a change of control.

This measure aims to encourage companies to list in the UK by supporting higher initial valuations and liquidity, and will take effect for agreements to transfer made on or after 27 November 2025.

ATED: removal of time limit for claims to relief

The government has announced a legislative change to the annual tax on enveloped dwellings (ATED) rules, as set out in a policy paper published by HMRC on 26 November 2025. The measure will remove the existing 12-month time limit for non-natural persons (NNPs, which includes companies, collective investment schemes and partnerships with corporate members), to claim relief from ATED where dwellings are held for certain commercial purposes (e.g. to let as part of a property business).

Under current law, as set out in s106(6) Finance Act 2013, claims to relief must be made within 12 months of the end of the relevant chargeable period, where the tax actually chargeable turns out to be lower than the initial amount of tax. The proposed amendment, to be introduced in the Finance Bill 2025-26, will allow such claims to be made at any time. The measure will take effect from the date of Royal Assent to the Finance Bill 2025-26 and will have retrospective effect as if it had always been in force.

Customs: treatment of low-value imports

The Autumn Budget sets out significant reforms to the customs and VAT treatment of low value imports (LVIs), defined as individual consignments valued at £135 or less sent from overseas businesses to UK recipients. The government will remove the existing LVI relief, making these consignments subject to tariffs and introducing new customs arrangements and custom duty payments. The reforms are intended to ensure that LVIs are subject to the UK Global Tariff schedule and to support improved compliance, while maintaining relief for non-commercial gifts valued at £39 or less sent between private individuals.

The new LVI customs arrangements will apply to most consignments valued at £135 or less, with exclusions for goods subject to non-ad valorem tariff rates, import restrictions, excise duty, or trade defence measures, which must use the standard import customs arrangements.

These reforms are scheduled for introduction from March 2029 at the latest, allowing time for system development and industry preparation. The government has launched a joint consultation with HM Treasury and HMRC, seeking input from a variety of stakeholders on the design and implementation of the new arrangements, with responses due by 6 March 2026.

Businesses involved in the sale and movement of LVIs should monitor (and consider participating in) the consultation process, as well as prepare for changes to customs and VAT compliance, registration requirements, data reporting and supply chain processes.

Digital Services Tax: review and future direction

HM Treasury has published a comprehensive review of the UK's Digital Services Tax (DST), five years after its introduction as an interim measure to address the tax challenges arising from the digitalisation of the economy.

In the review, the government reiterates its commitment to reform of the international tax framework as a long-term solution to the issue, emphasising that the DST will be removed once a global solution for the reallocation of taxing rights is in place. In the meantime, DST continues to operate as an interim solution, ensuring that digital businesses contribute UK tax in line with the value derived from user-related activities in the UK.

The review highlights that feedback from both taxpayers and advisers on the DST has been generally positive, particularly regarding HMRC's clear guidance and pragmatic approach to administration -  including the requirement, designed to ease administrative burdens, for only a single annual tax return to be filed per business group.

The review also observes that some in-scope groups have adjusted pricing strategies and passed on part of the DST cost to customers. Despite this, both consumption of in-scope digital services and the online advertising market have continued to grow. This has resulted in a gradual increase in the actual receipts of DST since its initial introduction (£380m in 2021-22, up to £808m in 2024-25).

Further, the report confirms that HMRC compliance teams have not yet identified any tax avoidance, or fraud, in relation to DST. Although there have been some differences in how HMRC and taxpayers have interpreted the provisions, these instances have been limited, and errors have only arisen through careless mistakes, rather than active non-compliance.

Landfill tax

The government has confirmed that the standard rate of Landfill Tax will increase in line with the Retail Price Index (RPI) for 2026-27, while the lower rate will rise by the same cash amount as the increase in the standard rate. This approach maintains the cash differential between the two rates. The gap between the two rates had (by design) widened significantly over time, so this will be welcome news to landfill site operators.

Following its recent consultation on reforms to Landfill Tax, the government has decided not to proceed with a transition to a single rate of tax by 2030 and will retain the exemption for quarries with disposal permits. The government’s summary of responses to its consultation sets out the outcome of a wide-ranging review of the tax. The consultation proposed a number of significant changes, including moving to a single rate of Landfill Tax by 2030, removing the qualifying fines regime, abolishing exemptions for filling quarries and for stabilisers used in dredged material, and ending the water discounting scheme. These proposals were intended to simplify the tax, reduce opportunities for avoidance, and better support the government’s circular economy ambitions.

Following strong feedback from stakeholders, the government has decided not to proceed with most of these proposals.

Carbon Border Adjustment Mechanism (CBAM)

The government announced as part of the Autumn Budget an amendment to the scope of the UK CBAM, which is set to be implemented from 1 January 2027. Contrary to previous announcements, indirect emissions associated with the production of CBAM goods will not be included in its scope at implementation. Instead, the inclusion of such indirect emissions within the scope of the UK CBAM will be delayed until at least 2029.