Autumn Budget 2026: the VAT implications

The Budget introduced several important changes to UK value added tax (VAT).

It tightened the scope of the reverse charge on cross-border services, introduced new zero-rating for the social housing sector, expanded the scope for online marketplaces amongst multiple other adjustments.

We summarise the main VAT changes below.

The main VAT changes

1. Reverse charge on services received from abroad

“From April 2027, the reverse charge on cross-border supplies of services will be restricted to VAT-registered businesses. Where overseas providers make supplies of services to non-VAT-registered UK businesses, they will be required to account for VAT in the normal way.”
Budget 2026 Red Book, paragraph 6.183

The current position

When a non-UK supplier provides ‘general rule’ services to a UK business, the business customer accounts for VAT under the reverse charge.

This applies even if the UK business isn’t VAT-registered. It can affect small businesses, exempt traders such as financial services firms, landlords, education and healthcare providers, and charities.

These organisations may not have considered VAT registration, so discovering that they must register and pay VAT on purchases from a non-UK supplier can come as an unwelcome surprise.

The change

From 1 April 2027, the reverse charge will apply only to UK VAT-registered customers.

An overseas supplier selling to a UK customer that isn’t VAT-registered will need to register for and account for UK VAT itself.

This removes the element of surprise for UK organisations that aren’t otherwise required to register. However, it creates practical difficulties for overseas suppliers, which will need to distinguish between sales subject to UK VAT and those covered by the reverse charge.

What to consider

Overseas suppliers should review their VAT reporting and invoicing systems so they can identify customers that aren’t UK VAT-registered and determine when they’ll need to register.

UK customers that aren’t VAT-registered should:

• Budget for an additional 20% VAT charge on services bought from overseas, such as Google Ads
• Review the VAT clauses in their contracts.

2. New zero rate for land sold to 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.”
Budget 2026 Red Book, paragraph 6.238

The current position

Land sold to a housing association for the construction of homes is exempt from VAT. However, it’s often subject to an option to tax, resulting in VAT being charged at 20%.

Because social housing providers make exempt supplies, VAT becomes an irrecoverable cost within the supply chain, increasing the cost of providing social housing.

The change

From 1 April 2027, these sales will be zero-rated.

The detailed rules haven’t yet been released, but it appears that zero-rating will apply only when a Registered Provider is involved in the supply chain.

We’ve explained to HM Revenue and Customs (HMRC) that the provision of social housing often includes more than supplies by Registered Providers, but we await the rules.

What to consider

Parties involved in land transactions that are already in progress should consider whether completion can be timed for 1 April 2027 or later.

3. Medical deputies: change to the health exemption

“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.”
Budget 2026 Red Book, paragraph 6.185

The current position

For decades, HMRC treated the provision of locum doctors as a supply of staff, subject to VAT at the standard rate. Suppliers of locum doctors argued that they were providing exempt medical care.

In Isle of Wight NHS Trust [2025] UKFTT 1114 (TC), the taxpayer successfully argued that the provision of a locum doctor was the exempt supply of a ‘deputy for a medical practitioner’ under Item 5, Group 7, Schedule 9 of the VAT Act 1994.

HMRC accepted the decision but now appears to favour changing the legislation rather than challenging the position further through the courts.

The change

From 1 May 2027, it appears likely that Item 5 will be removed.

What to consider

Although the exemption will be removed from 1 May 2027, the judgment indicates that supplies of locum doctors were exempt before the change.

Customers may therefore have claims against suppliers, and suppliers may have claims against HMRC, for VAT overpaid during the previous four years.

Businesses should also consider:

• Whether locum doctors provide exempt supplies consisting of medical care or supply staff, as the case law may not be fully settled
• The contractual terms covering supplies made both before and after 1 May 2027 should be reviewed.

4. Online marketplace liability extended to UK sellers

“From October 2027, VAT online marketplace liability (OMPL) rules will be extended to UK businesses. 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.”
Budget 2026 Red Book, paragraph 6.154

The current position

Since 2021, online marketplaces have been responsible for VAT on sales made by overseas sellers.

UK sellers continue to account for their own VAT. The government is concerned that some sellers don’t register or under-declare the VAT due.

The change

From 1 October 2027, online marketplaces will also collect VAT on sales by:

• UK VAT-registered sellers
• Other UK businesses with annual sales of at least £90,000 on the platform.

Personal sales, second-hand goods and business-to-business sales will be excluded.

What to consider

Online marketplaces and UK suppliers selling through them should review their VAT reporting systems to prevent VAT from being paid twice or not paid at all.  

5. Private hire vehicle operators: VAT on the full fare

“The government will deem the larger operators with annual fare turnover above a certain threshold liable for 20% VAT on the full value of their fares from 2 January 2028.”
Budget 2026 Red Book, paragraph 6.219

The current position

The VAT due on private hire journeys depends on the operator’s contractual arrangements.

An operator acting as principal pays VAT on the full fare, although the courts are still considering the implications of the Tour Operators’ Margin Scheme.

An operator acting as an agent for self-employed drivers pays VAT only on its commission. Individual drivers are usually below the VAT registration threshold.

The change

From 2 January 2028, larger operators will pay 20% VAT on the full fare, regardless of their contractual model.

The detailed rules haven’t yet been released, but HMRC has proposed an annual turnover threshold of £50m.

What to consider

Operators should review their VAT systems, pricing and budgets ahead of the change.

6. New zero rate for donated medicines

“The government will introduce a new zero rate of VAT for medicines donated in qualifying circumstances, including through early and expanded access schemes. The zero rate applies to qualifying donations made on or after 23 June 2026.”
Budget 2026 Red Book, paragraph 6.187

The current position

A business that gives away goods is often treated as making a supply and must account for VAT on that deemed supply.

Import VAT can also arise when donated medicines are brought into the UK, including for clinical trials. Pharmaceutical companies can therefore incur VAT on medicines for which they receive no payment.

This includes medicines donated through the Early Access to Medicines Scheme and for use in clinical trials.

The change

Qualifying donations will be zero-rated. No VAT will be payable and donors will still be able to recover related input VAT.

The relief will be backdated to cover donations made on or after 23 June 2026.

What to consider

Pharmaceutical businesses should identify donations made since 23 June 2026 on which VAT has been accounted for and prepare to claim it from HMRC.

‘Qualifying circumstances’ haven’t yet been defined, so businesses should review the draft legislation carefully before assuming that a donation qualifies.

The Budget also states that donated medication is treated as a sample for periods before 23 June 2026. This could affect its import VAT treatment.

7. Domestic electricity: temporary zero rate extended

“This Budget provides universal support with energy bills by extending the temporary 0% rate of VAT on qualifying domestic electricity supplies in Great Britain for another three months, until July 2027. This extension is expected to take around £50 off the annual Ofgem price cap in April 2027.”
Budget 2026 Red Book, paragraph 3.4

The current position

Domestic electricity is normally subject to VAT at the reduced rate of 5%.

In response to the sharp rise in global energy prices, the government reduced the rate to zero for six months, from 1 October 2026 to 31 March 2027.

The change

The temporary zero rate will be extended by three months, until 1 July 2027.

What to consider

Research suggests that targeted changes to the VAT rate can increase suppliers’ profits rather than reduce prices for consumers. If the government intends the saving to be passed on to consumers, the effect on prices will need to be monitored closely.

8. Other VAT measures

Electric vehicle charging

From 1 November 2026, electricity supplied through public and workplace charging points is confirmed as being subject to 20% VAT (paragraph 6.205).

Great British Summer Savings Scheme

As previously announced, VAT on family days out was reduced to 5% from 25 June 2026 to 1 September 2026 (Table 6.1, item 66). The scheme has ended. Businesses that applied the reduced rate should check that they restored the standard rate from 2 September 2026 and reported the reduced-rate period correctly.

Energy-saving materials

From 1 April 2027, energy-saving materials will return to the reduced rate of 5%, as planned. Heat batteries will also be added to the list of qualifying materials (paragraph 6.215).

E-invoicing and direct debit

From April 2029, VAT invoices must be issued in a specified electronic format. Businesses must also set up a direct debit for VAT return liabilities (paragraphs 6.145 and 6.148).

Finance teams should begin planning the necessary system changes.

Tour Operators’ Margin Scheme

The government has published a call for evidence on how the scheme operates and how it could be simplified (paragraph 6.263). Tour operators and travel agents should consider responding.

Changes following the abolition of NHS England

References to ‘NHS England’ in Schedule 8, Groups 12 and 15 of the VAT Act 1994 will be removed or replaced.

This will ensure that relevant reliefs previously available to NHS England remain available to the Department of Health and Social Care.

Drink deposit return schemes

Under the current VAT rules for drink deposit return schemes, manufacturers or importers making the first supply of products in the UK must account for VAT on deposits that aren’t refunded because containers haven’t been returned.

The new measures will simplify VAT accounting. The body with statutory responsibility for operating the scheme will instead account for VAT on deposits that aren’t refunded.

Form VAT126 claims

The proposed change will allow HMRC to make regulations for bodies submitting ‘section 33’ claims using form VAT126.

Next steps

Much of the detail will follow in the Finance Bill, secondary legislation and consultations.

Affected businesses should identify their exposure now and review contracts that continue beyond the relevant commencement dates.