Category Archives: MTD

VAT and the 2025 Budget

By   27 November 2025
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Budget 26 November 2025
There was not too much excitement in the budget for indirect taxes (there was no change to the registration threshold, nor any VAT rates), but there were some minor changes.
VAT Grouping
The rules relating to cross border VAT grouping will be clarified. From the Budget date of 26 November 2025′ the UK will revert to its previous position on grouping to restore the “whole establishment” principle. HMRC also published Revenue and Customs Brief 7 (2025): Revised VAT grouping rules and the Skandia judgment, confirming that HMRC 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.
This means that services provided between a UK head office and its overseas branch will once again be disregarded for VAT purposes, even if the branch belongs to a VAT group in another jurisdiction. 
HMRC acknowledges that some VAT groups may have accounted for VAT in line with the previous guidance and may now be eligible to reclaim overpaid VAT through the error correction notification procedure.
This HMRC brief provides more details.  

Private hire vehicles

Suppliers of private hire vehicle and taxi services will be excluded from the scope of the Tour Operators’ Margin Scheme (TOMS) from 2 January 2026, except where these are supplied in conjunction with certain other travel services. The government also published a response to the Consultation on the VAT Treatment of Private Hire Vehicles and HMRC published Revenue and Customs Brief 8 (2025): VAT Tour Operators’ Margin Scheme — supplies by private hire vehicle or taxi operators, which explains how to account for VAT as a private hire vehicle operator, a taxi operator, or business re-selling such supplies.

E-invoicing 

The government will require all VAT invoices to be issued in a specified electronic format from April 2029. An implementation roadmap will be published at Budget 2026 further to consultation with businesses. 

VAT treatment of business donations of goods to charity

There will be a new VAT relief to be be introduced on 1 April 2026 for business donations of goods to charity for distribution to those in need or use in the delivery of their charitable services, ie; in addition to goods donated for sale. HMRC also published a response to the Consultation on the VAT treatment of business donations of goods to charity, and a policy paper, VAT relief for business donations on goods to charities. The relief will apply to goods valued up to £100 per item, with a higher £200 threshold for essential electrical items to help tackle digital poverty. Eligibility is strictly limited to registered charities, meaning community interest companies (CICs) and social enterprises are excluded unless they register as charities. This corrects an anomaly where there is no VAT liability when businesses dispose of goods to landfill, but may incur one when donating those same goods to charity. 

Motability

From 1 July 2026, vehicles leased through the Motability Scheme will be subject to 20% VAT on top-up payments for more expensive vehicles which are made in addition to the transfer of eligible welfare payments for more expensive vehicles on the scheme. The standard rate of Insurance Premium Tax will apply to scheme insurance contracts: VAT and Insurance Premium Tax: change to reliefs for qualifying motor vehicle leasing schemes – GOV.UK There will be no changes to vehicles designed for, or substantially and permanently adapted for, wheelchair or stretcher users. 

ATCS

The Government has confirmed that the ‘Advance Tax Certainty Service’ (ATCS) will launch in July 2026 and provide clearances on corporation tax, stamp taxes, VAT, PAYE and the construction industry scheme, where there is no existing statutory route to certainty.

VAT: Repayment interest/commercial restitution

By   28 October 2025
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Repayment interest and commercial restitution for VAT Autumn Budget 2025 representation by the Chartered Institute of Taxation.

This joint representation by the CIOT and the ATT covers the blatant unfairness of the amount of interest HMRC charges taxpayers when a business pays VAT late and the amount that HMRC pays a taxpayer when there are delays in making repayments to a business when they are due. Unsurprisingly, taxpayers have to pay a higher rate of interest; for reasons unknown!

Details here. 

 

VAT – A beginner’s practical guide

By   22 September 2025
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VAT Basics

I am often asked if there is a VAT beginner’s guide, I find HMRC guidance generally unhelpful for someone without a tax background, so, here is all the basic information you may need in one place.

What is VAT?

Value Added Tax (VAT) is a tax charged on most business transactions made in the UK. It is charged on goods and services and is an ad valorem tax, which means it is proportionate to the value of the supply made.

All goods and services that are VAT rated (at any rate including zero) are called “taxable supplies”. VAT must be charged on taxable supplies from the date a business first needs to be registered. The value of these supplies is called the “taxable turnover”.

Exempt items

VAT does not apply to certain services because the law says these are exempt from VAT. These include some; financial services, property transactions, insurance education and healthcare. Supplies that are exempt from VAT do not form part of the taxable turnover.

The VAT rates

There are currently three rates of VAT in the UK:

  • 20% (standard rate) – Most items are standard rate unless they are specifically included in the lower rate categories.
  • 5% (reduced rate) – this applies to applies to certain items such as domestic fuel and power, installation of energy-saving materials, sanitary hygiene products and children’s car seats.
  • 0% (zero rate) – applies to specified items such as food, books and newspapers, children’s clothing, exports, new houses and public transport.

VAT registration

A business is required to register for, and charge VAT, if:

  • the taxable turnover reaches or is likely to reach a set limit, known as the VAT registration threshold
  • a VAT registered business has been acquired as a going concern (TOGC)
  • potentially; goods or services have been purchased VAT free from non-UK countries (a self-supply)

Registration limit

The current VAT registration threshold is £90,000. If at the end of any month the value of taxable supplies made in the past twelve months is more than this figure a business MUST VAT register.  A business can opt to register for VAT if its taxable turnover is less than this. Please note that taxable turnover is the amount of income received by a business and not just profit. If a business does not register at the correct time it will be fined.

Future test

Additionally, if, at any time there are reasonable grounds to expect that the value of the taxable supplies will be more than the threshold in the next thirty days alone a business must register immediately.

What are the exceptions?

VAT is not chargeable on:

  • taxable supplies made by a business which is not, and is not required to be, registered for VAT
  • zero rated supplies
  • supplies deemed to be made outside the UK
  • exempt supplies

What if a business only makes exempt or zero-rated supplies?

Exempt

If a business only makes exempt supplies, it cannot be registered for VAT. If a business is registered for VAT and makes some exempt supplies, it may not be able to reclaim all of its input tax.

Zero-rated

If a business only supplies goods or services which are zero-rated, it does not have to register for VAT, but, it may do so if it chooses – this is usually beneficial.

What is input tax and output tax?

Input tax is the VAT a business pays to its suppliers for goods and services. It is VAT on goods or services coming into a business. In most cases, input tax is the VAT that registered businesses can reclaim (offset against output tax).

Output tax is the term used to describe the VAT charged on a business’ sales of goods or services. Output tax is the VAT a business collects from its customers on each sale it makes.

A full guide to VAT jargon here

Is there anything that will make VAT simpler for a small business?

There are a number of simplified arrangements to make VAT accounting easier for small businesses. These are:

  • Cash Accounting Scheme
  • Annual Accounting Scheme
  • Flat Rate Scheme
  • Margin schemes for second-hand goods
  • Global Accounting
  • VAT schemes for retailers
  • Tour Operators’ Margin Scheme
  • Bad Debt Relief

Details may be found here and here and here.

VAT calculation

  • A business adds VAT to the value of sales it makes to other businesses or customers
  • The VAT amount is reached by multiplying the sale amount by the VAT rate percentage, then adding that to the value of the sale.
  • The total of the VAT on sales for a VAT period is output tax
  • For a VAT period, a business will total all VAT it has been charged by suppliers (eg; stock, repairs, rent, and general business expenses etc) – this is input tax.
  • On the VAT return for the period, the amount payable or reclaimable to HMRC is the output tax less input tax.

Records

A business must keep complete, up-to-date records that enable it to calculate the correct amount of VAT to declare on its returns. VAT records must be kept for at least six years, because a business will need to show them to HMRC when asked.

It is acceptable for ordinary business records to be the basis for VAT accounts. A business will need records of sales and purchases (and any adjustments such as credit notes) including details of how much VAT the business charged or paid. If trading internationally, records of imports and exports/dispatches and acquisitions with all overseas territories, including the EU must be recorded. VAT records must show details of any supplies a business has given away or taken for personal use.

VAT records must also include all invoices you have received and issued. Invoice requirements here

Records will also need to include a VAT account, showing how total input tax and output tax has been calculated to include in your VAT returns.

It is vital to ensure that the VAT records are accurate. Failure to do so can lead to significant tax penalties

MTD

For certain business, the new MTD rules apply and certain software must be used. Details here

Time of supply (tax point)

It is important to establish the time VAT is due. Full details here

VAT returns

A VAT registered business must submit returns on a regular basis (usually quarterly or monthly). A VAT return summarises a business’ sales and purchases and the VAT relating to them. All the information a business requires must be in its VAT records, specifically a VAT account.

Return requirements include:

  • sales total (excluding VAT)
  • output tax – this also includes VAT due on any other taxable transactions, eg; barters, non-monetary consideration, goods taken for personal use
  • value of purchases (excluding VAT)
  • input tax claimable
  • total of VAT payable/claimable

A box by box guide to returns here. 

Online VAT returns are due one month and seven days after the end of the VAT period. Payment of any VAT owed is due at the same time, although HMRC will collect direct debit payments three days later.

VAT: Taxpayers’ trust in HMRC is falling

By   6 August 2025
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Recently published HM Treasury Minutes show that taxpayers’ trust in HMRC is falling. The Public Accounts Committee (PAC) recommended that HMRC should work with taxpayers and their representatives to understand why trust in HMRC is falling and what it can do to quickly address the decline. Furthermore, the PAC recommended that HMRC should publish the concerns it has heard and the actions it is taking to address these, as a first step to improving trust.

HMRC agreed and the recommendation has been implemented. So, what is the plan?

The Plan

HMRC says it recognises five drivers of customer trust, being perceptions of:

  • fairness
  • competence
  • transparency
  • reciprocity
  • prevalent social norms

HMRC uses its annual customer surveys (most recently 2024), complaints data, and focus groups to understand these perceptions in driving changes in the headline measures for different customer groups. HMRC say it places ‘great value’ on customer feedback.

Alongside good customer service, trust depends on ensuring a fair tax ecosystem by holding to account those that do not pay the correct amount of tax, in addition to other factors such as prevailing trust in government.

The aim is to continue improving levels of trust by being more supportive, creating a level playing field, and ensuring its services and processes are quicker, easier and help more customers to get their taxes right first time.

For example:

  • delivering sustained improvements in HMRC’s helpline services
  • improving digital services
  • updating guidance regarding tax avoidance schemes
  • consulting on ways to improve intermediary standards and the benefits good advisers bring to the tax system, counter those that promote avoidance
  • reforming the tax administration framework
  • making improvements to services for tax advisers, such as improving the Agents Dedicated Line and Services Account, building digital transactional services and web-chat for tax advisers, and introducing a pre-complaint resolution service

HMRC publishes the results of its annual surveys as well as a range of other customer feedback eg; via exercises like public consultation. The Exchequer Secretary has confirmed that HMRC will publish a Transformation Roadmap this summer, including the details of digital services that will mean a better experience for taxpayers.

We await signs that HMRC’s services are improving and whether that lost trust can be returned. We have significant doubts, but remain open minded. 

VAT: HMRC Annual report and accounts to 31 March 2025

By   21 July 2025
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HMRC has published its annual report and accounts 2024 to 2025 on 17 July 2025.

Highlights

  • Total tax receipts were £875.9 billion – a 3.9% increase from 2023/24
  • VAT revenue was £178.5 billion – an increase of £13.0 billion on 2023/24 figures
  • 5,500 new compliance officers for HMRC
  • A focus on technology transformation including the use of AI
  • Aim to bring in an additional £7.5 billion per year by 2029/30 by an increased use of technology
  • Focus on improving ‘customer’ service (taxpayers!)
  • 310 prosecutions brought as a result of our criminal investigations, securing 281 convictions
  • 76.2% proportion of customer service interactions made through automated or digital self-serve channels
  • 2.8 million number of new HMRC app users
  • 30m+ VAT returns processed by Making Tax Digital for VAT
  • 26-40 hours saved per year, on average, for each business using fully functional MTD for VAT software
  • 78 million declarations made on HMRC Customs Declaration Service
  • £5.1 million financial penalties issued for non-compliance with money laundering regulations
  • HMRC three ongoing priorities:
    • closing the tax gap
    • improving day-to-day performance and the customer experience
    • driving reform and modernisation of the UK’s tax and customs system .

VAT: HMRC to close online forums

By   2 May 2025
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HMRC has announced that it will be closing its online forums and shifting to digital support with effect 30 June‌‌‌ 2025.

This decision has been taken as a result of increasing popularity of HMRC’s newer digital support (set out below) and to move towards a more modernised approach.

As an alternative to the previous forums, the following HMRC digital support channels can be used:

  • Webchat – an agent only channel which offers a faster alternative to telephony
  • @HMRCcustomers on X (formerly Twitter) – for general queries
  • Agent Talking Points webinars – for information on a range of subjects with opportunities for participants to submit questions
  • tax agents’ handbook – for information to help tax agents and advisers find guidance, use HMRC services and contact HMRC
  • service dashboard – for information on current service levels for post and online requests
  • Agent Updates – a monthly online digest of information specifically for the agent community

New published guidance: Amendments to VAT groups

By   15 April 2025
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HMRC has issued new guidance on 14 April 2025 in respect of amendments to VAT groups.
This includes the use of forms VAT50, VAT51 and VAT56 to:
  • add a group member
  • remove a group member
  • change the representative member of a VAT group
  • request to disband a group

Furthermore, the guidance on the use of form VAT53 to allow an accountant, or agent, to register, or make changes to, a VAT group on behalf of a business has been published. Unfortunately, this form needs to be downloaded, printed, completed by hand, and sent by post to HMRC.

Details on VAT groups, including the pros and cons here.

How to authorise an agent to act on a business’ behalf for VAT here.

VAT Returns: A box-by-box guide

By   10 March 2025
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VAT Basics

Return boxes explained – what goes where? A general overview.

 

Box 1 VAT due in the period on sales and other outputs

The amount of VAT due on all goods and services supplied in the period covered by the return. This is output tax. The value of output tax may be affected by VAT:

  • on credit notes issued
  • when refunds are made
  • on goods taken in part-exchange
  • underdeclared or overdeclared on previous returns within certain de minimis

VAT may also be due on supplies outside the mainstream of a business, eg:

  • fuel used for private motoring where VAT is accounted for using a scale charge
  • the sale of stocks and assets
  • goods taken out of the business for private use
  • VAT due under a reverse charge
  • supplies to staff
  • gifts of goods that cost more than £50
  • certain distance sales to Northern
  • commission received for selling something on behalf of a third-party
  • VAT shown on self-billed invoices issued by your customer
  • VAT due on imports accounted for through postponed VAT accounting

Box 2 VAT due in the period on acquisitions of goods made in Northern Ireland from the EU 

Since 1 January 2021, a business is only allowed to make acquisitions on goods brought into Northern Ireland from the EU. For acquisitions, the VAT due on all goods and related costs bought from VAT-registered suppliers in the EU should be included.

Box 3 total VAT due

Show the total VAT due, the total of boxes 1 and 2. This is the total output VAT for the period.

Box 4 VAT reclaimed in the period on purchases and other inputs

Show the total amount of deductible VAT charged on business purchases. This is input tax for the period.

This will include:

  • VAT paid on imports
  • imports accounted for through postponed VAT accounting.
  • claims for bad debt relief (BDR)
  • payments on removals from a warehousing regime or a free zone
  • VAT shown on self-billed invoices issued by you
  • acquisitions of goods into Northern Ireland from the EU

Certain VAT paid by a business should not be included in box 4, some examples here.

Adjustments to the amount claimed may be required for

  • VAT on any credit notes received
  • certain VAT underdeclared or overdeclared on earlier returns
  • partial exemption

Box 5 net VAT to pay or reclaim

Deduct the smaller from the larger of values in boxes 3 and 4 and enter the difference in box 5.

If the figure in box 3 is more than the figure in box 4, the difference is the amount payable to HMRC. If the figure in box 3 is less than the figure in box 4, HMRC will repay this.

Box 6 total value of sales and all other outputs excluding any VAT

Show the total VAT exclusive value of all business sales and other specific outputs. These will include:

  • zero-rated, reduced rate and exempt supplies
  • fuel scale charges
  • exports
  • distance sales to Northern Ireland which are above the distance selling threshold or, if below the threshold the overseas supplier opts to register for VAT in the UK
  • reverse charge transactions
  • supplies which are outside the scope of UK VAT (this is debateable, but HMRC require this information)
  • deposits that an invoice has been issued for
  • net value of the road fuel scale charge

Box 7 total value of purchases and all other inputs excluding any VAT

Show the total net value of expenditure. This will include:

  • imports
  • acquisitions of goods brought into Northern Ireland from the EU
  • reverse charge transactions
  • capital assets

Boxes 8 and 9 only need to be completed goods cross the Northern Ireland border.

Box 8 value of supplies of goods to the EU

For supplies of goods and related costs, excluding any VAT, from Northern Ireland the EU made from 1 January 2021.

Box 9 value of acquisitions of goods from the EU

For acquisitions of goods and related costs, excluding any VAT, from the EU into Northern Ireland from 1 January 2021.

 

NB: If a business uses one of the following schemes there may be different rules for completing some of the boxes on returns.

  • flat rate scheme
  • cash accounting
  • annual accounting
  • margin schemes for second hand goods, works of art, antiques and collectors’ items
  • payments on account.

A VAT Did you know?

By   26 February 2025
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Under one VAT scheme, zero-rated and exempt supplies are subject to VAT – as are those which are “Outside the scope of UK VAT”.

Which, or course, makes entire sense.

VAT: e-invoicing consultation published

By   13 February 2025
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HMRC and the Department for Business and Trade have published their UK e-invoicing consultation paper.

Background to this development here and here.

E-invoicing is the digital exchange of invoice information directly between buyers’ and suppliers’ financial systems, even if these systems are different. The outcome is an invoice which is automatically written into the buyer’s financial system without manual processing.

E-invoicing automates the exchange of invoices between buyers and suppliers. The government says that increased e-invoicing uptake may support economic growth, business productivity, improve business cashflow and reduce errors in tax returns. It has the potential to both support businesses and tax administration.

The consultation aims to understand how e-invoicing aligns with businesses and their customers. Responses from businesses of all sizes – whether they use e-invoicing or not – as well as interest groups, representative bodies, industry bodies and individuals are encouraged.

The purpose of the consultation is to seek input on how the government can support the increased adoption of e-invoicing. The main points are:

  • different models of e-invoicing
  • whether to take a mandated or voluntary approach to e-invoicing
  • what scope of mandate might be most appropriate in the UK and for businesses
  • whether e-invoicing should be complemented by real time digital reporting

This would be a significant change to VAT and all businesses should understand the impact.

More on VAT in the Digital Age (ViDA), including Real-time digital reporting here.