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What Are the EIS and VCT New Limits From April 2026?

Posted on 23 July 202623 July 2026 by Farazia Gillani

We are increasingly asked whether the EIS and VCT new limits give growing companies more scope to raise tax-advantaged investments. The answer is yes, but the changes do not simply increase every allowance available to companies and investors.

From 6 April 2026, most qualifying companies can raise considerably more under the Enterprise Investment Scheme and through Venture Capital Trust investment. The company’s gross asset thresholds have also increased. However, the upfront income tax relief available to individuals investing in newly issued VCT shares has fallen from 30% to 20%.

Quick Answer

Most qualifying companies can now raise up to £10 million in a rolling 12-month period, increased from £5 million.
The standard lifetime investment limit has increased from £12 million to £24 million.
Knowledge-intensive companies can raise up to £20 million annually and £40 million over their lifetime.
The gross assets test is now £30 million before investment and £35 million immediately afterwards.
VCT income tax relief has fallen from 30% to 20% for investments made from 6 April 2026.
EIS income tax relief remains at 30%.
Older limits continue to apply to certain Northern Ireland companies carrying on specified activities.

What Are the EIS and VCT New Limits From 6 April 2026?

The EIS and VCT new limits double the main annual and lifetime funding caps for most qualifying companies. They also increase the amount of gross assets a company may hold while remaining within the schemes.

Company Test	Before 6 April 2026	From 6 April 2026
Standard annual investment limit	£5 million	£10 million
Knowledge-intensive annual limit	£10 million	£20 million
Standard lifetime investment limit	£12 million	£24 million
Knowledge-intensive lifetime limit	£20 million	£40 million
Gross assets immediately before investment	£15 million	£30 million
Gross assets immediately after investment	£16 million	£35 million

These limits consider relevant risk finance investments received under EIS, VCT, SEIS and certain other forms of qualifying support. Amounts received by subsidiaries, former subsidiaries or businesses later acquired by the company may also need to be counted.

The limits are not separate pots for EIS and VCT funding. A company cannot raise £10 million through EIS and then treat a further £10 million of VCT-backed funding as falling outside the same annual limit.

Read: Reduce Capital Gains Tax With EIS, SEIS, VCT Tax Benefits

Which Companies Benefit From the EIS Changes in 2026?

Most UK growth companies that remain within the wider EIS qualifying conditions can benefit from the increased limits. The changes are particularly relevant to businesses that had reached, or were approaching, the former £5 million annual or £12 million lifetime caps.

A qualifying company may now have more room to

complete a larger funding round
raise follow-on finance from existing or new investors
accept investment at a later stage of growth
combine direct EIS investment with VCT-backed funding
continue expansion after reaching the former lifetime ceiling

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Example

Consider a qualifying technology company that had already received £11 million of relevant risk finance investment before April 2026.

Under the previous standard lifetime limit of £12 million, it would generally have had only £1 million of remaining headroom. Under the new £24 million lifetime limit, it may have significantly more capacity, provided the company and the new share issue satisfy all other conditions.

The increased cap does not automatically make a company eligible. Its trade, age, share structure, use of funds and risk-to-capital position must still meet the scheme rules. HMRC requires the company to have objectives to grow and develop over the long term, while the investment must expose the investor to a significant risk of capital loss.

How Do the New Limits Affect Knowledge-Intensive Companies?

A qualifying knowledge-intensive company can now receive up to £20 million in relevant investment during a rolling 12-month period and £40 million over its lifetime. These are twice the limits that generally applied before 6 April 2026.

Knowledge-intensive company status is intended for businesses carrying out substantial research, development or innovation. Additional tests apply, so a company does not qualify merely because it operates in technology, software or life sciences.

The increased limits may be particularly valuable for businesses with:

long research and development periods;
high product-development costs;
substantial technical staffing requirements;
delayed commercial income;
repeated funding needs before profitability.

A company intending to rely on the higher limits should establish its status before presenting the investment as EIS or VCT qualifying. The relevant evidence may include expenditure records, employee qualifications, intellectual property ownership and details of the company’s innovation activities.

Read: Record VCT Fundraising and Tax Relief Changes

What Changed in the Gross Assets Test?

For most companies, gross assets must not exceed £30 million immediately before the investment and £35 million immediately afterwards. Before 6 April 2026, the equivalent limits were £15 million and £16 million.

The test is applied to the company or, where applicable, the relevant group. It is based on gross assets rather than net assets, so liabilities do not simply reduce the figure for this purpose.

The timing of the test matters:

Immediately before the share issue: gross assets must not exceed £30 million.
Immediately after the share issue: gross assets must not exceed £35 million.

A company with £29 million of gross assets before raising £5 million would have £34 million immediately afterwards, assuming no other balance-sheet movement. It may therefore remain within the increased asset thresholds.

By contrast, a company with £32 million of assets immediately before the issue would normally fail the first part of the test, even if it had significant liabilities.

Management accounts and an up-to-date balance sheet should be reviewed before the investment date. Relying only on the previous statutory accounts may produce the wrong answer where the company’s assets have changed materially.

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Have the EIS Tax Reliefs Available to Investors Changed?

The main EIS income tax relief rate remains 30%, despite the higher company fundraising limits. An individual may generally claim relief on up to £1 million of EIS investment per tax year or up to £2 million where the amount above £1 million is invested in knowledge-intensive companies.

The tax reduction cannot exceed the investor’s UK income tax liability for the relevant year. Unused relief cannot be carried forward to a later tax year, although eligible EIS shares may be treated as issued in the preceding tax year, subject to that year’s limits and conditions.

EIS Investor Example

An investor subscribes £100,000 for qualifying EIS shares during 2026/27.

At 30%, the maximum initial income tax relief is:

£100,000 × 30% = £30,000

The investor must have sufficient income tax liability to use the full £30,000. The company and investor must also continue meeting the EIS requirements, including the relevant minimum holding period.

The increase in company funding limits does not increase the standard 30% relief rate or the general £1 million investor allowance.

What Are the Main VCT Income Tax Relief Changes in 2026?

The company-level funding and gross asset limits have increased, but the upfront VCT income tax relief rate has fallen to 20% for qualifying investments from 6 April 2026. The individual investment limit remains £200,000 per tax year.

The principal VCT investor position is now:

VCT Rule	2025/26	From 2026/27
Maximum annual investment qualifying for relief	£200,000	£200,000
Upfront income tax relief	30%	20%
Maximum potential initial relief	£60,000	£40,000
Tax treatment of qualifying VCT dividends	Tax-free	Tax-free
Capital Gains Tax on qualifying VCT disposals	Exempt	Exempt

HMRC’s updated guidance confirms that investors can claim VCT relief on no more than £200,000 in a tax year and that the applicable rate is now 20%. VCT relief is available only for the tax year in which the qualifying investment is made; unlike EIS relief, it cannot be carried back to the previous year.

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VCT Investor Example

An investor subscribes £100,000 for newly issued qualifying VCT shares during 2026/27.

The maximum upfront income tax relief is:

£100,000 × 20% = £20,000

Before 6 April 2026, an equivalent qualifying subscription could have generated relief of £30,000. The 2026 change therefore reduces the initial tax saving by £10,000 on a £100,000 investment.

The investor must still have enough UK income tax liability to absorb the relief and meet the required holding conditions.

Do the EIS and VCT Scheme Changes Apply to Every Company?

No. Certain companies registered in Northern Ireland continue to use the former annual, lifetime and gross asset limits. HMRC refers to these businesses as specified companies.

Broadly, a specified company is one whose registered office is in Northern Ireland and which carries on a trade involving:

goods, generally including manufacturing rather than services; or
specified wholesale electricity market activities, including generation, transmission or distribution.

For these companies, the standard annual limit remains £5 million, and the standard lifetime limit remains £12 million. A qualifying knowledge-intensive specified company retains the former £10 million annual and £20 million lifetime limits.

This exception exists because different subsidy control arrangements can apply to certain Northern Ireland activities. A Northern Ireland company should not assume that it qualifies for the higher limits simply because its investment takes place after 6 April 2026.

Do the Higher Limits Remove the Other EIS Eligibility Conditions?

No. The EIS changes 2026 increase selected financial thresholds but do not remove the wider qualifying conditions. A company must still satisfy requirements covering its trade, age, independence, use of funds and share issue.

The company will normally need to consider whether:

it carries on a qualifying trade
it has a permanent establishment in the UK
it is not controlled by another company
the shares are eligible ordinary shares
the investment is made for genuine commercial reasons
the funds will be used for qualifying business growth
the money will be employed within the required period
the company remains within the relevant employee limit
the investment satisfies the risk-to-capital condition
it is within the permitted period following its first commercial sale

For most companies, the initial investment must generally occur within seven years of the first commercial sale. Different provisions can apply to knowledge-intensive companies and to businesses raising finance for a new product or market under the relevant conditions.

EIS qualification is not a one-time test completed on the investment date. A later breach can lead to investors losing relief.

Also Read: Everything About R&D Tax Relief Advance Assurance For SMEs

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Should a Company Apply for EIS Advance Assurance?

A company considering an EIS fundraising round should usually consider advance assurance before approaching investors, particularly where eligibility is not straightforward. Advance assurance gives HMRC an opportunity to consider whether specified conditions are likely to be met based on the information provided.

It is not a guarantee that investor relief will ultimately be available. HMRC makes clear that assurance addresses only certain conditions and is based on the facts included in the application.

A well-supported application will commonly include:

a current business plan;
financial forecasts;
details of the proposed share issue;
an explanation of how the funds will be used;
the company’s group structure;
information about previous risk finance investment;
evidence of potential investors or a fund manager;
details supporting knowledge-intensive status, where relevant.

Companies should also check how much relevant investment they and their subsidiaries have already received. Historical funding can count towards the new annual and lifetime limits.

Apex Accountants provides Enterprise Investment Scheme support for companies assessing eligibility, preparing advance assurance applications and completing post-investment compliance work.

What Should Companies Do Before Using the Higher Limits?

A company should complete a documented eligibility review before describing a funding round as EIS or VCT qualifying. The new thresholds create more funding capacity, but errors elsewhere can still put investor relief at risk.

The review should cover four main areas.

1. Recalculate Previous Risk Finance Investment

Compile all relevant amounts received by:

the company;
current subsidiaries;
relevant former subsidiaries;
acquired businesses whose previous funding may count;
group companies that employed risk finance money in the qualifying trade.

The calculation should cover both the rolling 12-month limit and the lifetime limit.

2. Test Gross Assets at the Correct Time

Prepare reliable financial information immediately before the proposed share issue. Then model the company’s gross assets immediately after receiving the investment.

3. Review the Use of Funds

The investment must support qualifying growth and development. Companies should document how the money will be spent and connect it to the forecasts and business plan.

4. Protect Post-Investment Compliance

The company should monitor changes involving:

share capital;
investor rights;
subsidiaries;
trading activities;
use of funds;
payments or benefits to investors;
company acquisitions or disposals.

Post-investment actions can affect relief even when the company qualified on the original issue date.

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Frequently Asked Questions

Did EIS income tax relief fall to 20% in April 2026?

No. EIS income tax relief remains at 30% for qualifying investments. It is VCT upfront income tax relief that fell from 30% to 20% for investments made from 6 April 2026.

Can a company that reached the old £12 million EIS limit raise more?

Potentially, yes. A qualifying company that is not a specified Northern Ireland company may now have a lifetime limit of £24 million, or £40 million if it qualifies as knowledge-intensive. Previous relevant investment still counts, and all other EIS conditions must be satisfied.

Is the £10 million limit based on the tax year?

No. The company annual funding limit operates over a rolling 12-month period, not simply from 6 April to 5 April. Companies must therefore examine relevant investment received during the 12 months surrounding the proposed funding.

Can an investor put £2 million into an ordinary EIS company?

An investor can claim EIS relief on up to £2 million in a tax year only where at least £1 million is invested in knowledge-intensive companies. The general limit for investments not qualifying under the knowledge-intensive rules remains £1 million.

Do the new limits apply to SEIS?

The April 2026 increases discussed here apply to company limits under EIS and VCT. SEIS continues to have its own rules and thresholds, including a maximum qualifying investor subscription of £200,000 per tax year and separate company fundraising limits.

Does HMRC advance assurance guarantee EIS tax relief?

No. Advance assurance is based on the information supplied and covers only specified scheme conditions. Final relief also depends on the actual share issue, the investor’s circumstances and continued compliance after the investment.

How Can Apex Accountants Help With an EIS Funding Round?

The higher limits give qualifying growth companies more scope to raise tax-advantaged finance, but the additional headroom does not reduce the importance of a complete eligibility review.

Apex Accountants can assess previous risk finance funding, review the gross assets test, prepare financial forecasts and support an EIS advance assurance application. We can also assist with the post-investment compliance statement required before qualifying investors receive their EIS certificates.

For companies planning a new round under the EIS and VCT scheme changes, the next sensible step is to review eligibility before finalising investment terms. Book a consultation with Apex Accountants to discuss the proposed funding structure.

Everything About R&D Tax Relief Advance Assurance For SMEs

Posted on 23 July 202623 July 2026 by Rida Ahmed

We’re increasingly asked by SME clients whether it’s worth applying for advance assurance before submitting an R&D tax relief claim. Until this year, the honest answer was often “probably not” — the existing scheme was narrow, and HMRC’s own figures show it went almost entirely unused. That’s changed. On 18 May 2026, HMRC launched a new targeted advance assurance pilot alongside the existing full claim service, giving a wider group of SMEs a route to certainty on the specific issues most likely to trigger an enquiry.

This matters because HMRC’s compliance activity on R&D claims has intensified sharply since 2023, and a badly evidenced claim can now mean a lengthy enquiry rather than a quick refund. Advance assurance, done properly, is one of the few tools available to de-risk a claim before it’s even submitted.

Quick answer:

HMRC’s new targeted advance assurance pilot launched on 18 May 2026 and will run until May 2027.
It lets eligible SMEs get HMRC’s view on up to 2 specific areas of an R&D claim, not the whole thing.
Alongside it, the older full claim advance assurance service still exists, but only for genuine first-time SME claimants.
HMRC aims to respond within 40 calendar days, but there’s no right of appeal if assurance is refused.
Uptake of the original scheme was under 1% of eligible companies — this pilot exists specifically to fix that.

What is R&D tax relief advance assurance for SMEs?

Advance assurance is a voluntary HMRC service that lets a company find out, before it claims, whether HMRC agrees its research and development work qualifies for R&D tax relief. It is not the claim itself — you still have to submit the actual claim through your corporation tax return afterwards.

Where HMRC grants assurance, it confirms in writing that it will accept the claim on the terms discussed and agreed upon, provided nothing material changes. This has always mattered to SMEs because R&D tax relief carries genuine technical judgement — what counts as a “qualifying uncertainty” isn’t always obvious — and getting that judgement wrong after the money has already been claimed and spent is a far worse position than finding out beforehand.

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What is the new targeted advance assurance pilot?

The targeted advance assurance pilot gives companies the option to obtain HMRC’s opinion on particular parts of an R&D tax relief claim before it is submitted. Introduced on 18 May 2026, the scheme is scheduled to operate on a trial basis until May 2027.

Unlike standard advance assurance, the pilot does not require HMRC to review every part of the proposed claim. A business can instead choose a maximum of two areas where the tax treatment may be uncertain or carry greater risk.

HMRC may provide assurance on:

Whether the activities within a project qualify as R&D under the tax rules.
Whether eligible R&D costs incurred overseas can be included.
Whether expenditure on work subcontracted to another business qualifies.
Whether the business falls within an exception to the PAYE and National Insurance cap.

Each application must focus on one R&D project and one of these areas. Businesses seeking HMRC’s view on two separate points must therefore submit two applications. Further applications will be needed where advice is required on another project or an additional issue.

Which companies can apply for the HMRC advance assurance pilot?

To apply, your company must be an SME carrying out, or genuinely planning to carry out, qualifying R&D – and you must not have already claimed relief or received assurance on those same two areas for the accounting period in question. Both the company itself and an authorised agent can submit the application.

You cannot use the targeted pilot if any of the following apply:

Your company is a large company rather than an SME.
You want assurance on three or more areas of the same claim.
You’ve already applied for full claim advance assurance for the same period.
The company, or a connected person, has entered a disclosable tax avoidance scheme (DOTAS), is classed as a ‘corporate serious defaulter’, or has an open corporation tax enquiry.

Unlike the older full claim service, the targeted pilot is not restricted to first-time claimants. That’s a genuine widening of access, and it’s the detail most competitor coverage on this topic glosses over.

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How does the HMRC advance assurance pilot differ from full-claim advance assurance?

The two services exist side by side, but they’re built for different situations, and a company cannot apply under both for the same period or project.

	Targeted advance assurance (pilot)	Full claim advance assurance
Launched	18 May 2026	Established service since 2015
Scope	Up to 2 specific areas of a claim	The entire claim
Eligibility	SMEs can be first-time or repeat claimants	SMEs claiming for the first time only
Duration of cover	Per project/area agreed	First 3 accounting periods
Response target	Within 40 calendar days	Not separately specified by HMRC
Appeal if refused	No right of appeal	No right of appeal
Runs until	May 2027 (pilot period)	Ongoing

Full claim advance assurance remains the better fit for a genuinely new claimant wanting blanket comfort on an entire, relatively straightforward project across three years. The targeted pilot suits a company—first-time or not—that’s confident about most of its claim but uncertain on one or two specific technical points, such as whether a subcontracted element qualifies.

Why did HMRC introduce this pilot now?

HMRC introduced the pilot because the existing advance assurance service had almost no uptake, despite being available since 2015. Its own consultation, launched at the Spring Statement 2025, recorded just 80 applications in the 2023 to 2024 tax year, against roughly 11,500 eligible companies — a take-up rate of well under 1%.

That consultation ran from 26 March to 26 May 2025 and asked whether a wider clearance model, potentially including paid-for or even mandatory assurance for higher-risk claims, could reduce error and fraud while giving businesses more certainty. Professional bodies including the ICAEW and CIOT responded, broadly supporting reform but warning that any new process had to offer a genuine benefit, not just extra administration.

The targeted pilot announced at the Autumn Budget 2025 and launched in May 2026 is HMRC’s direct response: a narrower, faster-to-complete alternative aimed at the specific technical flashpoints – overseas costs, contracted-out work, the PAYE cap, and the basic R&D definition – that most often lead to an enquiry.

HMRC’s R&D tax relief advance assurance pilot announcement: HMRC’s R&D Tax Relief Advance Assurance Pilot (2026): What UK SMEs Need to Know

How do you apply for targeted advance assurance?

You apply online, either yourself or through an authorised agent, and HMRC aims to process the application within 40 calendar days of receiving a full, accurate submission.

Before applying, gather:

Your Company Registration Number (CRN).
The start date of the project and the accounting period the claim will relate to.
Details of the competent professional and a senior officer within the company.
A project overview, forecasted expenditure, and project duration.
Details of the type of records held to support the claim.
If overseas expenditure is one of your chosen areas, an explanation of why you believe the cost qualifies.

The online form cannot be saved partway through and doesn’t accept attachments, so it’s worth preparing everything in a separate document first. An agent acting on your behalf will need appropriate authorisation — form 64-8 for general tax representation or form COMP1 if HMRC is to deal directly with the adviser during a compliance check.

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What happens if HMRC refuses advance assurance?

If HMRC refuses assurance, it will write to explain the reasons — but there is no right of appeal, and you cannot reapply for assurance in that same area and period. This is arguably the single most important caveat in the whole scheme and one that several competitor articles understate.

A refusal doesn’t stop you claiming R&D tax relief through your company tax return in the normal way. HMRC is explicit, however, that you should carefully check the conditions on the declined area before doing so, since a refusal is a strong signal that HMRC has doubts about that aspect of the claim.

What should SMEs do next?

If your company is planning R&D work and has a genuine question mark over one specific technical area — rather than the whole project — the targeted pilot is worth serious consideration, particularly given HMRC’s heightened compliance focus on R&D claims since 2023. If you’re a true first-time claimant with a straightforward project, full claim advance assurance may still be the simpler route.

Either way, the quality of the application matters far more than the choice of scheme. HMRC is assessing technical detail, not enthusiasm, and a poorly evidenced application is likely to fare no better under the new pilot than under the old process.

FAQs About R&D Tax Relief Advance Assurance

Does advance assurance guarantee my R&D claim will be accepted?

Not automatically. It guarantees HMRC’s agreed position on the specific area or areas covered, provided the actual claim is consistent with what you described in your application. If your project or costs change materially afterwards, the assurance may no longer apply.

How much does advance assurance cost to apply for?

Both the targeted pilot and full claim advance assurance are free HMRC services with no application fee. However, most SMEs use a specialist adviser to prepare the technical evidence behind the application, and that advisory time is a cost worth budgeting for.

Do I need an accountant or tax adviser to apply?

You can apply yourself or through an authorised agent — it isn’t a legal requirement to use an adviser. In practice, because the areas HMRC will assess are technically precise, most companies get better outcomes with support from an adviser experienced in R&D tax relief.

What happens if my R&D activities change after assurance is granted?

HMRC’s confirmation letter sets out the company’s responsibilities and what happens if the R&D activities change from what was described. Material changes can affect whether the original assurance still covers the eventual claim, so it’s important to notify your adviser promptly if the project’s scope shifts.

Can large companies apply for advance assurance?

No, eligibility for both forms of advance assurance is limited to businesses that meet HMRC’s SME criteria. This generally means employing fewer than 500 people and having either annual turnover below €100 million or total assets below €86 million. Figures from connected and associated businesses must also be included when applying these limits. Companies outside the SME definition use the merged R&D expenditure credit scheme for their claims.

How long will the targeted advance assurance pilot run?

The pilot launched on 18 May 2026 and is scheduled to run until May 2027. As with any pilot, HMRC could extend, narrow, or make it permanent depending on how take-up and outcomes compare with the previous scheme.

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Getting your R&D claim right, before you file it

Advance assurance can take real uncertainty out of an R&D claim, but only if the underlying technical case is sound — HMRC’s pilot doesn’t change what qualifies as R&D; it simply tells you its view earlier. If you’re weighing up whether your project qualifies, whether contracted-out work is claimable, or whether advance assurance is the right step before you file, Apex Accountants’ R&D tax relief team can review your position and prepare the application on your behalf. The sensible next step is usually a short conversation before any figures go anywhere near HMRC — you can book a consultation with us to talk it through.

Changes to Capital Goods Scheme for VAT: What UK Businesses Need to Know

Posted on 19 July 202619 July 2026 by Nida Umair

A client came to APEX last year partway through refurbishing a mixed-use building — offices upstairs, a partly exempt letting downstairs. The spend sat just above the old £250,000 capital goods scheme threshold, which meant ten years of annual VAT adjustments to track and defend. Under the rules that now apply, that same refurbishment would fall outside the scheme entirely. From 29 July 2026, HMRC will raise the Capital Goods Scheme threshold for land, buildings and civil engineering work from £250,000 to £600,000 and will remove computers from the scheme altogether. This is the biggest change to CGS since it was introduced in 1990, and it will pull thousands of smaller property transactions out of a notoriously complex compliance regime.

Quick answer:

The Capital Goods Scheme (CGS) threshold for land, buildings and civil engineering works rises from £250,000 to £600,000 (excluding VAT) from 29 July 2026.
Computers and computer equipment are removed from the CGS entirely from the same date — the old £50,000 threshold no longer applies to them.
The change only affects capital expenditure incurred on or after 29 July 2026; anything already committed under contract before that date follows the old rules.
It’s made via secondary legislation amending regulations 113 and 114 of the VAT Regulations 1995 (SI 1995/2518) — this is a confirmed HMRC measure, not a consultation proposal.
HMRC estimates the change will save affected businesses roughly £0.6 million a year in administrative costs, with negligible Exchequer impact.

What is the Capital Goods Scheme for VAT?

The Capital Goods Scheme for VAT is an adjustment mechanism that spreads the recovery of input tax on certain high-value assets over several years, rather than allowing a single claim at the point of purchase. It exists to stop businesses over- or under-claiming VAT when the taxable use of an asset changes after acquisition.

Under current law, two categories of asset fall within CGS:

Land, buildings and civil engineering works, where capital expenditure is £250,000 or more (excluding VAT) — adjusted over 10 successive intervals.
Computers and computer equipment, where capital expenditure is £50,000 or more — adjusted over 5 successive intervals.

Once an asset is inside the scheme, the business must revisit the VAT recovery percentage every year for the length of the adjustment period, comparing the asset’s actual taxable use against the baseline set in year one.

If taxable use rises, HMRC repays more VAT; if it falls, the business repays VAT already claimed. A change of use on disposal within the adjustment period can trigger a single, larger reconciliation covering all the remaining years at once.

Businesses that are fully taxable are not automatically exempt from this – a change from taxable to exempt use, such as an office building later let on an exempt basis, can still trigger a clawback even where the business recovers all its VAT elsewhere.

Read: VAT on Online Marketplace Sales: What UK Sellers Need to Know About the New HMRC Consultation

What’s changing under the Capital Goods Scheme simplification?

HMRC is making two specific changes to CGS from 29 July 2026, confirmed in its policy paper on the simplification of the scheme. The threshold for land, buildings and civil engineering works increases, and computers leave the scheme completely.

Higher property threshold: the £250,000 trigger for land, buildings and civil engineering works rises to £600,000 (excluding VAT). Expenditure below that level will no longer create a CGS item at all.
Computers removed entirely: computers and items of computer equipment are taken out of the scheme’s scope. The old £50,000 threshold and 5-interval adjustment period for computer equipment cease to apply.

The legal mechanism is an amendment to Part XV of the VAT Regulations 1995 (SI 1995/2518). Regulation 113(2) is amended to remove the reference to computers and computer equipment, and regulation 113(4) is amended to raise the property threshold, with consequential changes to regulations 113A and 114.

When do the new CGS rules take effect?

The changes take effect on 29 July 2026 and are not retrospective. Capital expenditure incurred before that date — meaning goods or services already received, or goods already imported or acquired — continues to be governed by the old £250,000 and £50,000 thresholds, even if the asset’s adjustment period runs on for years afterwards.

In practice, this means:

A property purchase or refurbishment where the tax point falls before 29 July 2026 is tested against the old £250,000 threshold, regardless of when the deal completes on paper.
A property purchase or refurbishment where the tax point falls on or after 29 July 2026 is tested against the new £600,000 threshold.
Assets already inside CGS under the old rules stay inside CGS and continue their existing adjustment period — the threshold change does not remove them from the scheme retroactively.

Businesses part-way through a phased development that straddles the date should take advice before assuming which threshold applies, since the transitional rule is based on when expenditure is incurred, not when the wider project is signed off.

How does the higher £600,000 threshold work in practice?

A capital project only falls within CGS if its VAT-exclusive cost meets or exceeds the relevant threshold — everything below that line is recovered under normal partial exemption rules with no ongoing adjustment obligation. Here’s how that plays out for a typical partly exempt business.

Example:

A dental practice buys and fits out a new clinic building for £400,000 (excluding VAT), incurring £80,000 of VAT. Under the current £250,000 threshold, that expenditure falls within CGS, committing the practice to ten years of annual adjustment calculations as its mix of NHS and private (exempt/taxable) work shifts.

Under the new £600,000 threshold, the same £400,000 spend falls outside the scheme entirely. The practice recovers VAT once, under its normal partial exemption method, with no ten-year tail of adjustments to monitor or defend at inspection.

The same logic applies to refurbishments. A £900,000 refurbishment of an existing building still crosses the new threshold and remains a CGS item in its own right, tracked separately from the underlying property. Businesses working close to £600,000 should model the VAT position before committing to a build contract, since structuring the spend (or timing it either side of 29 July 2026) can determine whether ten years of adjustment obligations apply.

Why is HMRC removing computers from the Capital Goods Scheme?

HMRC says the computer category has become redundant because the cost of qualifying equipment has fallen well below the £50,000 threshold since the scheme was introduced in 1990, so it is very rarely triggered in practice. Removing it eliminates a compliance obligation that HMRC itself acknowledges delivers little practical benefit for the Exchequer.

The wider reform follows a long consultation history. The government launched a Call for Evidence in July 2019, after the 2017 Office of Tax Simplification VAT review flagged CGS as unnecessarily burdensome for smaller businesses. A summary of responses was published in March 2021, and the specific threshold and computer changes were formally announced on 28 April 2025 as part of the government’s Tax Update: Simplification, Administration and Reform work. HMRC’s own impact assessment projects negligible Exchequer cost and estimates ongoing administrative savings for businesses of around £0.6 million a year, concentrated among smaller property owners who previously fell within scope simply because of rising property values.

Who is affected by these changes to VAT on capital expenditure?

The changes affect any VAT-registered business incurring capital expenditure on land, buildings, civil engineering works, or computer equipment. In practice, the businesses most affected fall into a few groups.

Partly exempt businesses — including care providers, financial services firms, education providers and charities — who mix taxable and exempt income and have historically had to track CGS adjustments on modest property purchases.
Property investors and developers carrying out refurbishments or fit-outs in the £250,000–£600,000 band, who will now fall outside the scheme altogether.
SMEs buying or improving commercial premises, for whom the old threshold had become disproportionate as property values rose since 1990.
Any business holding computer equipment previously caught by the £50,000 threshold, which will simply stop being a CGS consideration from 29 July 2026.

Wholly taxable businesses are not exempt from the practical effects either — even a fully taxable business can find a change of use (for example, letting out surplus space on an exempt basis) crystallising a CGS liability, so the higher property threshold is a genuine simplification for that group too.

Also Read: Getting Your Business Ready for the Summer’s Temporary VAT Cut

What should businesses do to prepare?

Businesses with capital projects planned for mid-to-late 2026 should establish now whether their expenditure will fall inside or outside CGS once the new threshold applies. Three practical steps matter most.

Identify the tax point for any pending land, building or civil engineering spend, since that — not the completion date of the wider project — determines which threshold applies.
Review existing CGS records for assets already inside the scheme under the old £250,000 or £50,000 thresholds; these continue on their original adjustment period regardless of the reform.
Reassess partial exemption methods where CGS previously drove the choice of method, since removing an asset from CGS can change what special method (if any) is still worthwhile.

FAQs About HMRCs Changes To Capital Goods Scheme

Does the Capital Goods Scheme only affect partly exempt businesses?

No. While partly exempt businesses are most exposed, a fully taxable business can still be caught if the use of an asset later changes — for example, letting out space that was originally used for taxable trading. The scheme is triggered by a change in use, not by a business’s overall VAT status at the time of purchase.

What happens if I sell a capital item during the adjustment period?

Selling a capital item during its adjustment period crystallises all the remaining years’ adjustments in a single calculation, made in the VAT return covering the sale. If the sale itself is a taxable supply, the remaining intervals are treated as 100% taxable use; if it’s exempt, they’re treated as 0% taxable use, which can produce a significant one-off VAT repayment or claim.

Do the new thresholds apply retrospectively to buildings I already own?

No. The higher threshold only applies to capital expenditure incurred on or after 29 July 2026. Assets that were already inside the Capital Goods Scheme under the £250,000 or £50,000 thresholds remain inside the scheme and continue their existing adjustment period unaffected.

Is this confirmed law or still a proposal?

This is confirmed government policy, implemented through secondary legislation amending the VAT Regulations 1995, with an operative date of 29 July 2026 set out in HMRC’s published policy paper. It is not a consultation or draft proposal at this stage, though businesses should always check GOV.UK for the final statutory instrument reference nearer the commencement date.

Do I need an accountant for Capital Goods Scheme calculations?

Most businesses benefit from professional support, particularly where a project sits close to the £600,000 threshold or where partial exemption percentages fluctuate year to year. Getting the baseline interval wrong, or missing a change-of-use trigger, can lead to VAT assessments and penalties several years after the original purchase.

What if my capital expenditure is close to the £600,000 threshold?

Where spend is close to the threshold, timing and contract structuring can determine whether the Capital Goods Scheme applies at all. It’s worth taking advice before committing to a build contract, since expenditure incurred just before 29 July 2026 is tested against the old £250,000 limit even if the wider project completes later.

Next steps

If you’re planning capital expenditure on property, refurbishment or equipment in the run-up to this change, it’s worth reviewing the VAT treatment before contracts are signed rather than after. Apex Accountants & Tax Advisors works with property owners, developers and partly exempt businesses across the UK to assess Capital Goods Scheme exposure, structure capital projects efficiently and manage existing CGS adjustment schedules. Book a consultation with our VAT team to review your position ahead of the 29 July 2026 change.

Scottish Tax Advice for High Earners and the 67.5% Tax Trap

Posted on 14 July 202614 July 2026 by Farazia Gillani

Scottish tax advice for high earners has become more important as Scottish taxpayers earning above £100,000 face one of the highest effective marginal income tax rates in the developed world. The figure is 67.5%. It does not appear in any legislation. It is not an official rate. But it is real; it is unavoidable unless planned around, and it is growing more relevant every year as frozen thresholds drag more earners into its range.

What Is the 67.5% Tax Trap and Where Does It Come From?

The trap is the product of two policies colliding.

The first is a UK-wide rule. The Personal Allowance, currently £12,570, begins to taper once income exceeds £100,000. For every £2 earned above that threshold, £1 of the allowance is withdrawn. By £125,140, the allowance is gone entirely. This taper has long created a 60% effective marginal rate for higher earners in England and Wales because they pay 40% tax on the extra income and 40% on the allowance that disappears.

The second is Scotland-specific. Scotland has its own income tax rates, set by the Scottish Parliament under powers devolved through the Scotland Act 2016. In Scotland, the income between £75,001 and £125,140 falls within the Advanced Rate band, which is taxed at 45%.

The Scottish Government’s own tax-ready reckoners confirm the outcome directly: “Taxpayers earning more than £125,140 do not benefit from the Personal Allowance. These taxpayers face a marginal rate of Income taxation of 67.5% on earnings between £100,000 and £125,140.”

The arithmetic works like this. On each £2 earned in this range, the Scottish taxpayer pays 45% income tax on that £2 and separately loses £1 of Personal Allowance, which is then also taxed at 45%. The result is a combined rate of 67.5% on each additional pound.

Scotland’s Six-Band System in 2026/27

To understand where the trap sits, it helps to see the full rate structure. The Scottish Government confirmed the following bands for 2026/27 at the Scottish Budget on 13 January 2026:

Band	Gross Income Range	Rate
Starter	£12,571 to £16,537	19%
Basic	£16,538 to £29,526	20%
Intermediate	£29,527 to £43,662	21%
Higher	£43,663 to £75,000	42%
Advanced	£75,001 to £125,140	45%
Top	Above £125,140	48%

Source: gov.scot — Scottish Income Tax rates and bands 2026/27

In this Budget, the Higher, Advanced, and Top rate thresholds all remained unchanged. Only the Starter and Basic rate thresholds were raised, by 7.4%.

Two things stand out. Scotland’s Higher Rate begins at £43,663, compared with £50,271 in England. Scottish earners, therefore, enter the 42% band nearly £7,000 earlier. The Advanced Rate of 45% interacts with the Personal Allowance taper to create the 67.5% trap, and it has no equivalent in England’s three-band structure.

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Why Scottish tax advice for high earners matters more now

Three years ago, the trap caught a narrower group of earners. Frozen thresholds have changed that.

The UK government confirmed in the 2025 Autumn Statement that the personal allowance will remain frozen at £12,570 until at least 2030/31, as confirmed by the Scottish Government’s technical factsheet. The higher, advanced, and top-rate thresholds in Scotland will also remain frozen for the current Parliament.

As wages rise with inflation, more workers are crossing £100,000 for the first time. Professionals in medicine, law, and financial services, as well as senior public sector employees and business owners drawing salary and dividends, are increasingly being pulled into the taper range without any change in the value of what they earn in real terms.

The Institute for Fiscal Studies noted that Scotland’s marginal rate structure is “significantly more complex” than the rest of the UK, with seven effective rates once the taper is counted, and that the 67.5% rate in the £100,000 to £125,140 range exceeds England’s equivalent 60% by 7.5 percentage points.

Who Is Caught

The trap affects Scottish residents whose non-savings, non-dividend income falls between £100,000 and £125,140. This category includes:

Employed professionals on salaries in this range
Company directors drawing salary above £100,000
Self-employed individuals whose taxable profits cross the threshold
Earners who receive a bonus that pushes them over £100,000 in a single year
Those with combined income sources — salary, rental income, or self-employment — that together exceed the threshold

It is worth noting that National Insurance and dividend income are reserved matters and do not follow Scottish income tax rates. The trap is specific to non-savings employment and self-employment income.

Scottish income tax planning and adjusted net income

The good news is that the 67.5% rate is avoidable. The mechanism is straightforward.

Tax advice for Scottish taxpayers often starts with adjusted net income, the figure used to calculate the personal allowance taper. This is broadly gross income minus pension contributions and Gift Aid donations. If adjusted net income can be brought below £100,000, the full personal allowance is restored, and the 67.5% rate does not apply.

Pension contributions are the most commonly used tool for achieving this. Contributing enough to bring adjusted net income to £100,000 avoids the taper entirely. For a Scottish taxpayer at £110,000, a £10,000 pension contribution achieves this goal. Because the contribution attracts 45% tax relief and restores the personal allowance, the effective rate of relief for a Scottish advanced rate taxpayer in this band is the 67.5% rate itself.

Salary sacrifice is more efficient still. Contributions made through a salary sacrifice arrangement reduce gross pay before tax and National Insurance are calculated. This means both income tax and National Insurance are saved, rather than income tax alone. The employer will typically also save on employer National Insurance, and some employers pass this saving back into the employee’s pension.

Carry-forward allows unused pension annual allowances from the three previous tax years to be used in the current year. This option can be valuable for an earner who has received an unusually large bonus or has seen income spike above £100,000 for the first time.

Gift Aid donations also reduce adjusted net income. A qualifying donation of £10,000 under Gift Aid has the same effect as a pension contribution of the same amount in reducing the taper exposure.

The current pension Annual Allowance is £60,000 for most taxpayers in 2026/27, as confirmed by HMRC’s pension scheme rates guidance. High earners with adjusted income above £260,000 face a tapered reduction in their allowance, which is relevant for those looking to use huge contributions to navigate the taper.

What Happens If Nothing Is Done

For an earner with no planning who moves from £99,999 to £125,140 of income, the effective rate on that entire additional slice is 67.5%. A pay rise of £25,141 yields just £8,171 in additional take-home pay. The remaining £16,970 goes to HMRC.

This is not an avoidance scheme. It is the intended consequence of the Personal Allowance taper combined with Scotland’s Advanced Rate. Planning to reduce adjusted net income below £100,000 is lawful, HMRC-acknowledged, and widely recommended by professional bodies.

How tax advice from Apex Accountants for Scottish taxpayers can help

The 67.5% trap often creates demand for Scottish tax advice for high earners among people who are unaware of it until they receive their tax bill. It also catches earners who believe they have planned around it but have miscalculated their adjusted net income.

Apex Accountants & Tax Advisors works with Scottish residents, professionals, and business owners to:

Calculate adjusted net income accurately, including all relevant income sources and deductions
Model pension contribution strategies to bring income below £100,000 efficiently
Advise on salary sacrifice arrangements, including the interaction with employer National Insurance
Review carry-forward positions from previous years to identify additional headroom
Assess the impact of bonuses or one-off income events and plan for them in advance
Structure dividend and salary remuneration for Scottish company directors to minimise exposure to the taper
Advise on Gift Aid and other legitimate deductions that reduce adjusted net income

Scottish income tax planning is most effective earlier in the tax year, when more options are available. If you review your position after the year has ended, you will limit what you can do.

Contact Apex Accountants today for tax advice for Scottish taxpayers and a review of your Scottish income tax position. Book a free consultation with one of our specialist tax advisers.

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Frequently Asked Questions

What is the 67.5% tax trap in Scotland?

It is the effective marginal income tax rate that applies to Scottish taxpayers earning between £100,000 and £125,140. It arises from the combination of Scotland’s 45% Advanced Rate of income tax and the UK-wide Personal Allowance taper, which withdraws £1 of the £12,570 allowance for every £2 earned above £100,000. The Scottish Government’s own ready reckoners confirm this rate. See gov.scot: Scottish Budget 2026/27 Tax Ready Reckoners.

Does the 67.5% rate apply if I earn dividends or savings income above £100,000?

No. The Scottish income tax rates apply only to non-savings, non-dividend income such as employment income, self-employment profits, and rental income. Dividend income and savings interest are taxed at UK-wide rates regardless of where you live. However, dividend income does count toward your adjusted net income, which determines whether the Personal Allowance taper applies. See GOV.UK: Scottish Income Tax.

How do pension contributions help avoid the tax trap?

Pension contributions reduce your adjusted net income, which is the figure HMRC uses to calculate the Personal Allowance taper. If a contribution brings your adjusted net income below £100,000, your full personal allowance of £12,570 is restored. The effective tax relief on contributions made within the taper range is 67.5% for Scottish Advanced Rate taxpayers, because the contribution both avoids the 45% charge and restores the tax-free allowance.

What is the pension annual allowance in 2026/27?

The standard annual allowance for most taxpayers is £60,000 for 2026/27, or 100% of earnings if lower. This figure covers contributions from all sources, including employer contributions. High earners with threshold income above £200,000 and adjusted income above £260,000 face a tapered reduction in their allowance. Unused allowance from the three previous tax years can be carried forward. See HMRC: Pension Scheme Rates.

Does the trap affect Scottish taxpayers who work in England?

Yes. Scottish taxpayer status is determined by where you live, not where you work. If your main residence is in Scotland, you pay Scottish income tax rates regardless of where your employer is based or where you work each day. Your employer should apply an S-prefix tax code to your PAYE.

Were there any changes to the £100,000 threshold in the 2026/27 Scottish Budget?

No. The Scottish Government confirmed at the Scottish Budget on 13 January 2026 that the higher, advanced, and top-rate thresholds would remain unchanged. Only the starter and basic rate thresholds increased. The UK government, not the Scottish Parliament, sets the £100,000 personal allowance taper threshold, which remains frozen.

VAT on Online Marketplace Sales: What UK Sellers Need to Know About the New HMRC Consultation

Posted on 13 July 202613 July 2026 by Farazia Gillani

UK-based sellers trading on Amazon, eBay, Etsy and similar platforms could soon find themselves subject to a very different VAT system. A new joint consultation from HM Treasury and HMRC is looking at whether online marketplaces should become liable for VAT on domestic seller sales, not just on sales made by overseas traders.

If this goes ahead, it would be one of the biggest shifts in UK marketplace VAT since the 2021 reforms. Here’s what’s actually being proposed, who it affects, and what sellers should be doing about it now.

What Is the Online Marketplace VAT Liability Consultation?

The consultation, titled Extending VAT Online Marketplace Liability to Combat Non-Compliance, opened on 23 June 2026 and runs for eight weeks, closing at 11:59pm on 18 August 2026. It’s a joint project between HMRC and HM Treasury, and it sits within a wider package of 40 tax measures announced by the Exchequer Secretary to the Treasury on the same date.

At its core, the proposal would extend online marketplace VAT liability rules beyond overseas sellers and low-value imports, making platforms responsible for accounting for VAT on certain sales made by UK-established businesses too.

No implementation date has been set. If the government decides to proceed, a further technical consultation on draft legislation would follow before anything becomes law.

Why Is the Government Doing This?

The short answer: money and fairness.

HMRC estimates that tens of thousands of UK-based businesses trading through online marketplaces aren’t meeting their VAT obligations, with the resulting non-compliance running into the hundreds of millions of pounds each year.

The concern isn’t really about VAT rates or new taxes. It’s about levelling the playing field. Sellers who dodge VAT can undercut competitors who charge it correctly, whether those competitors trade online or from a high street shop. The government has said any additional revenue raised would be channelled back into support for high street businesses through changes to the business rates system.

This builds on the 2021 reforms, which made marketplaces liable for VAT on:

sales by overseas sellers with goods already in the UK at the point of sale
low-value imports of £135 or less, where the goods are outside the UK when sold

Those changes worked well for overseas non-compliance. What they didn’t fix was VAT leakage among UK-based sellers, and that’s the gap this new consultation is trying to close.

Read: The Complete Tax Guide for Online Sellers in the UK – Amazon, Vinted, eBay, and Etsy

How Does Marketplace VAT Work Right Now?

Before looking at what might change, it helps to understand the current rules.

Scenario	Who accounts for VAT today
Overseas seller, goods already in the UK at sale	The marketplace
Goods outside the UK, consignment value £135 or less	The marketplace
Goods outside the UK, consignment value over £135	Normal import VAT and customs rules apply
UK-established seller, goods in the UK at sale	The seller
Sale to a UK VAT-registered business customer with a valid VAT number	The business customer accounts for VAT in the relevant low-value import scenario

A platform only counts as an “online marketplace” for VAT purposes if it does all three of the following:

sets the terms of sale
processes or enables payment
is involved in ordering, delivery, or facilitating delivery

Platforms that simply run adverts, process payments only, or redirect buyers elsewhere aren’t caught by these rules.

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What Would Actually Change for UK Sellers?

This is the part that matters most to domestic sellers. Under the proposal, marketplaces would become liable for VAT on business-to-consumer sales made by UK-established sellers, where the goods are already in the UK at the point of sale.

Technically, this would work through a deemed supply structure: the seller would make a zero-rated supply to the marketplace, and the marketplace would then charge VAT to the end customer and account for it on its own VAT return.

A few things the proposal makes clear:

It’s aimed at B2C sales only — business-to-business transactions are out of scope.
It would not change VAT rates on any goods. Zero-rated items stay zero-rated.
Sales through a seller’s own website or physical shop would be unaffected — the seller would keep accounting for VAT on those as normal.
Input tax recovery would continue under the usual rules.

For information on the trading allowance, do read: How to Use the £1,000 Trading Allowance When Selling on Vinted, eBay & Other Platforms

Who Would Be Protected? The Threshold Question

HMRC faces one of the trickiest challenges in this proposal: preventing the rules from affecting small sellers who do not need to register for VAT. HMRC is consulting on two main options:

Option 1: A Minimum Platform Threshold

A marketplace would only become liable for a seller’s VAT once that seller’s sales on that specific platform pass a set value. The lead suggestion is £90,000 — the same as the standard UK VAT registration threshold — though a lower figure is also being considered, since £90,000 per platform could still leave gaps for sellers who spread sales across several marketplaces.

Option 2: A VAT rate relief

Instead of a threshold, smaller UK businesses below the VAT registration threshold could get some form of rate relief on their marketplace sales.

Neither option is confirmed. The consultation is genuinely asking for input on which approach works better in practice, and it’s a question sellers close to the threshold should watch closely.

It’s also worth being clear about what stays the same: the standard UK VAT registration threshold remains more than £90,000 of taxable turnover across all sales channels combined. A platform-specific threshold, if introduced, wouldn’t replace that underlying obligation.

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Who’s Excluded From the Proposed Rules?

Private and casual sellers: Individuals selling personal possessions, not operating as a business, aren’t intended to be caught by any of this.
Second-hand goods sellers — possibly: This one is still unresolved. UK businesses using the Second-hand Margin Scheme calculate VAT on the margin between purchase and sale price, which doesn’t fit neatly into a marketplace deemed-supply model. HMRC is weighing up whether to exclude second-hand sales entirely or find another way to handle them.

Takeaway and Food Delivery Platforms Are Explicitly in Scope

This isn’t just an e-commerce goods story. The consultation specifically names takeaway food delivery platforms, restaurants, fast food kitchens and takeaway outlets as relevant businesses.

For platforms that only operate within the UK and haven’t previously had to deal with the overseas-seller marketplace rules, this could be a much bigger operational shift than for the likes of Amazon or eBay, which already run complex VAT logic for international sellers.

What About the Flat Rate Scheme?

The consultation directly asks about the impact on businesses using the VAT Flat Rate Scheme. If marketplace sales move to a deemed-supply model where the platform accounts for VAT, sellers on the Flat Rate Scheme could effectively lose the ability to apply their flat rate percentage to that portion of turnover.

Businesses using the Flat Rate Scheme with a significant share of marketplace sales should review the impact early, as this remains an open issue rather than a confirmed rule.

A detailed tax guide for eBay sellers: eBay HMRC UK Tax Rules Every Seller Should Know

What Should Sellers and Their Accountants Do Now?

There’s no new law yet — this is still a consultation, and the response period runs until 18 August 2026. But that’s exactly why now is the sensible time to check exposure, rather than waiting for the outcome.

A practical short-term checklist:

List every marketplace the business sells through
Break down turnover by platform, not just as a single total
Separate B2C sales from B2B sales
Check how close turnover is to the £90,000 VAT threshold
Review whether the business uses the Flat Rate Scheme
Flag any second-hand goods activity
Note which sales come through the business’s own website, since these stay outside the marketplace model
Prepare for more marketplace onboarding checks and data requests going forward

Review Area	Why It Matters
VAT registration status	Both the standard threshold and the proposed platform threshold sit at £90,000
Marketplace turnover by platform	The lead proposal is based on sales per platform, not combined turnover
Sales channel split	Website and shop sales stay under the current model; marketplace sales could shift
B2C vs B2B split	Only B2C marketplace sales are in scope of the proposal
Second-hand goods	Treatment is still undecided because of the Margin Scheme
Flat Rate Scheme use	Directly flagged as an area HMRC wants evidence on

How We Help You Deal With the VAT on Online Marketplace Sales and the Proposed Changes

At Apex Accountants, we work with online sellers, e-commerce businesses and marketplace traders across Amazon, eBay, Etsy and food delivery platforms to keep their VAT position under control — including ahead of policy changes like this one.

Our support covers:

VAT registration reviews for e-commerce and marketplace sellers
Turnover analysis broken down by platform and sales channel
B2C and B2B VAT mapping for mixed-channel businesses
Flat Rate Scheme impact reviews
Second-hand goods and Margin Scheme reviews
Marketplace VAT compliance checks for Amazon, eBay, Etsy and similar platforms
Support with preparing and submitting responses to the HMRC consultation

If you sell through an online marketplace, the sensible move isn’t to wait for the final rules — it’s to understand exactly where your VAT exposure sits today.

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Conclusion

This is still a consultation, not a finished piece of legislation, and the final shape of any changes won’t be clear until after 18 August 2026. But the direction of travel is unmistakable: HMRC wants marketplaces to take on more VAT responsibility for UK-based sellers, not just overseas ones and low-value imports.

VAT-registered sellers may find that platforms, rather than sellers themselves, account for VAT on marketplace sales. Smaller sellers need to assess whether the final rules introduce a suitable threshold or relief. Sellers can strengthen their position by reviewing VAT registration status, platform-by-platform turnover, sales channel mix and Flat Rate Scheme use before the rules take effect.

Common Questions From UK Marketplace Sellers

Will this affect my Amazon, eBay or Etsy account?

Potentially, yes. The proposal applies to qualifying online marketplaces that facilitate B2C goods sales. It is not limited to specific platforms and could affect sellers using major marketplace channels.

Does this affect sales through my own website?

No. The proposal currently focuses on marketplace sales only. VAT obligations for sales made through your own website, physical shop or direct channels would continue under existing rules.

What if my turnover is under £90,000?

This remains an important area under consultation. Possible protections include a Minimum Platform Threshold or VAT rate relief, but the final approach has not been confirmed.

Will marketplaces ask for more information from sellers?

Yes, sellers may need to provide more details. Platforms could review business location, marketplace turnover, seller status, and whether goods are new or second-hand.

Are business-to-business sales included?

No. The proposed changes focus on business-to-consumer sales of goods. B2B transactions are outside the main scope of the proposed marketplace VAT liability rules.

Tax Rules for Hair and Beauty Businesses in the UK

Posted on 10 July 202610 July 2026 by Farazia Gillani

Hair and beauty businesses often use flexible working models. A salon may have employees, chair renters, mobile stylists, freelance beauty therapists, and room renters working under one roof.

That flexibility can work well, but it also creates tax risk.

The key issue is not just what a contract says. The real working arrangement matters too. As per the hair and beauty tax rules, workers in this industry are either employed or self-employed, and that status affects income tax, national insurance, and VAT responsibilities.

For salon owners, barbers, nail technicians, beauty therapists, and chair renters, this is now a good time to review contracts, payment flows, client ownership, and VAT treatment.

At Apex Accountants, we help hair and beauty businesses get these areas right before small issues become expensive problems.

What the new tax guidance for hair and beauty services

The latest focus is on how people actually work in salons, barbershops, and beauty studios.

There is no special new tax rate for hair and beauty services. The real change is clearer guidance on employment status and VAT treatment.

This matters because the wrong setup can affect the following:

Area	Why it matters
Employment status	It affects who pays Income Tax and National Insurance.
Chair rental	It can create VATable income for the salon.
Client payments	It affects who reports sales and VAT.
Self-Assessment	Freelancers may need to file tax returns.
Making Tax Digital	Some sole traders now need digital records.

The main lesson is simple. A business model must match daily working practice.

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HMRC employment status guidance for the hair and beauty industry – employment or self-employed

Employment status is one of the biggest tax issues in hair and beauty.

A person may be called ‘freelance’, ‘self-employed’ or a ‘chair renter.’ That label is not enough. The actual working pattern must support it.

The contract and the daily setup both matter.

Working point	More like employed	More like self-employed
Hours	Salon sets hours	Worker chooses hours
Days worked	Salon decides	Worker decides
Clients	Salon provides clients	Worker finds own clients
Products	Salon provides products	Worker buys or chooses products
Tasks	Salon controls duties	Worker manages own work
Pay	Fixed wage or rate	Worker sets own prices
Time off	Salon controls leave	Worker chooses leave

When a worker is likely to be employed

A worker is more likely to be employed if the salon controls their working day.

This may include:

setting start and finish times
deciding which days they work
booking clients for them
setting prices
providing products
assigning tasks
monitoring performance
paying a fixed hourly rate or salary

Employees have income tax and national insurance deducted through PAYE. Apprentices in salons will normally fall into this employed category.

When a worker is likely to be self-employed

A worker is more likely to be self-employed if they run their work like their own business.

This may include:

choosing when and where they work
finding their own clients
keeping their own client records
buying products and equipment
setting their own prices
taking payments from clients
paying rent or commission to the salon
working at more than one salon
only earning money when they have appointments

Chair renters, mobile stylists, and beauty therapists who visit clients at home can fall into this category, but only where the facts support it.

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Mixed work is common

Some people work in more than one way.

For example, a stylist may be employed by a salon during the week and also have private clients outside those hours. In that case, they may have employment income and self-employed income.

This means the tax treatment may be split.

The PAYE income is handled by the employer. The private client income may need to be reported through self-assessment.

Why getting employment status wrong is risky

Wrong status can lead to unpaid tax, National Insurance, interest, and penalties.

The risk is higher where a salon treats someone as self-employed but still controls their work like an employee.

Salon owners should review:

contracts
rotas
pricing control
client ownership
product supply
booking systems
payment handling
rent or commission agreements

The aim of the HMRC employment status guidance for the hair and beauty industry is to make the paperwork match the business model.

VAT rules for chair rental

Chair rental is one of the most important VAT areas for salons.

Where a salon rents chair space to self-employed stylists, the supply to those stylists is subject to VAT. This rule can apply even if the stylist has a licence to occupy the chair space.

This is because chair rental often includes more than space. It may include access to washbasins, reception areas, waiting areas, and other salon facilities.

A VAT-registered salon must treat this income correctly on its VAT return.

Read: Zero-Rated VAT on Hair Loss Treatments: Mark Glenn Ltd v HMRC Explained

Who accounts for VAT on client takings

VAT treatment depends on who supplies the service to the client.

Business model	VAT treatment
Stylists are employees	The salon supplies the service and accounts for VAT on gross takings.
Self-employed stylists supply services to the salon	The salon accounts for VAT on gross takings. The stylist may also have VAT duties if registered or required to register.
Stylists supply services direct to their own clients	VAT depends on the stylist’s own takings and VAT position. Payments passed to the salon are payment for the salon’s own supplies, such as chair rent.

This is why the payment flow matters. The answer changes depending on whether the client belongs to the salon or the self-employed worker.

Signs that a stylist supplies clients directly

A self-employed model is stronger when the stylist is genuinely trading on their own account.

Useful indicators include:

Stylists keep their own books and records
they set their own prices
they have their own clients
client pays the stylist
stylist handles complaints
the stylist controls bookings
stylist carries business risk
salon charges rent or commission
the written agreement reflects the real setup

If the salon controls the client relationship, prices, and payments, the tax position may be different.

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VAT registration for salons and beauty businesses

A beauty and hair business must register for VAT if taxable turnover goes over £90,000 in the last 12 months.

Registration is also needed if taxable turnover is expected to go over £90,000 in the next 30 days.

For salons and beauty businesses, taxable turnover may include:

hair services
beauty treatments
nail services
barbering
product sales
chair rental income
room rental income
commission from self-employed workers

A business can also register voluntarily if turnover is below £90,000. Once registered, VAT must be charged on taxable supplies from the date of registration.

Also Read: Do Hairdressers Charge VAT in the UK?

Flat Rate Scheme for hair and beauty

Some smaller VAT-registered businesses may use the Flat Rate Scheme.

For hairdressing or other beauty treatment services, the flat rate percentage is 13%. A business may pay 16.5% if it is classed as a limited-cost business. This scheme can be useful, but it is not always the best choice.

Before using it, salon owners should check:

expected turnover
product costs
equipment costs
VAT on purchases
chair rental income
whether the limited cost business rule applies

A quick VAT review can help avoid choosing a scheme that costs more than expected.

Self-Assessment for freelancers

Self-employed stylists, barbers, nail technicians, and beauty therapists may need to file a tax return.

A sole trader must usually send a self-assessment tax return if they earn more than £1,000 before deducting expenses. Untaxed tips and commission can also create a filing requirement.

Self-employed workers should keep records of:

client payments
chair rent
room rent
stock and product costs
equipment costs
travel costs
training costs
insurance
phone and booking software costs
business bank transactions

Tax is paid on profit, not sales. Good records help show the real profit figure.

Tips in hair and beauty

Tips need careful handling. Income tax applies to tips. Whether National Insurance applies depends on how the tips are paid and managed.

Tip type	Tax treatment
Direct tip kept by the worker	The worker must report it. Income Tax applies. National Insurance is not usually due.
Tip paid through the employer	Tax is deducted through wages. National Insurance may apply depending on the setup.
Tips paid through a tronc	Tax is handled through the Tronc system. National Insurance depends on employer involvement.
Compulsory service charge	Treated like wages if paid to the worker.

Cash tips should not be ignored. They still form part of taxable income.

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Making Tax Digital for Income Tax

As making tax digital for income tax now affects some sole traders.

It applies in stages based on qualifying income from self-employment and property:

Qualifying income	Start date
Over £50,000 in 2024 to 2025	6 April 2026
Over £30,000 in 2025 to 2026	6 April 2027
Over £20,000 in 2026 to 2027	6 April 2028

This can affect freelance stylists, mobile beauty therapists, nail technicians, and barbers who trade as sole traders.

Those in scope need compatible software and digital records.

This is important because many hair and beauty businesses still use notebooks, spreadsheets, or booking apps that are not linked to tax records.

Business rates for salon premises

Physical salons in England may also need to review business rates.

Retail, hospitality, and leisure relief can no longer be newly claimed. From 1 April 2026, business rates are calculated using rate multipliers.

Hair and beauty salons are listed among service businesses that can fall within the retail, hospitality, and leisure multiplier rules, where the property meets the conditions.

This can affect:

hair salons
nail bars
beauty salons
tanning shops
salons offering non-surgical cosmetic procedures
piercing salons

This applies to England only.

Common mistakes to avoid

Hair and beauty businesses should avoid these errors:

treating all freelancers as self-employed without checking the facts
using chair rental agreements that do not match daily practice
missing VAT on chair or room rental
counting only profit when checking VAT registration
ignoring cash tips
mixing personal and business payments
failing to keep client payment records
waiting too long to prepare for Making Tax Digital
assuming a contract is enough on its own

Good tax compliance in this sector starts with clear records and a working model that makes sense.

How We Help Businesses Stay Compliant with HMRC’s New Tax Guidance for Hair and Beauty Services

At Apex Accountants, we support hair and beauty businesses with practical tax and accounting advice.

Our services include:

employment status reviews for salons and barbershops
chair rental and room rental tax checks
VAT registration advice
VAT return support
Self-assessment for stylists and beauty therapists
bookkeeping for salons and freelancers
payroll for salon employees
Making Tax Digital setup
year-end accounts
business structure advice

We help salon owners and freelancers build a tax setup that reflects how they actually work.

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Conclusion

Hair and beauty tax rules are not just about filing returns on time. The real risk sits in the business model.

Salon owners need to know whether workers are employed or self-employed. They also need to check VAT on chair rental, client takings, tips, self-assessment, and digital reporting.

Freelancers need to know when to register, what records to keep, and how their income should be reported.

Apex Accountants can help hair and beauty businesses review their contracts, VAT position, payment flows, and tax records so the business stays compliant and is easier to manage.

FAQs About Tax Rules for Hair and Beauty Businesses

Am I self-employed if I rent a chair?

Renting a chair does not automatically make you self-employed for UK tax purposes. Your status depends on whether you control clients, prices, hours, bookings, and payments and operate independently. HMRC’s CEST tool and hair-and-beauty guidance should be used to confirm status.

Does chair rental include VAT?

If the salon is VAT-registered, chair rental to self-employed stylists is normally standard-rated for VAT, especially when facilities like reception, washing, or bookings are included. Pure land/property rent can be exempt, but most salon “chair rentals” are included as taxable.

Do beauty therapists need to register for VAT?

Beauty therapists must register for UK VAT if their taxable turnover exceeds £90,000 in any rolling 12-month period or if they expect to exceed it. Voluntary registration is allowed below the threshold and may help a month-long period reclaim input VAT on business costs.

Do mobile hairdressers need a tax return?

Self-employed mobile hairdressers must file a self-assessment tax return if their gross trading income exceeds £1,000 in a tax year, after using the £1,000 trading allowance. Below this, no return is needed unless they have other reportable income or gains.

Are tips taxable?

All tips and gratuities are subject to UK Income Tax. How they are reported depends on whether customers pay you directly or via the salon; National Insurance may also be due where the employer allocates or manages the tips under PAYE or a tronc.

Does Making Tax Digital apply to beauticians?

MTD for Income Tax applies to self-employed beauticians with qualifying business or property income over £50,000 from April 2026, with the threshold falling to £30,000 in 2027 and £20,000 in 2028. They must use compatible software and send quarterly updates to HMRC.

Effective Tax Strategies for Managing Rental Property Purchases and Sales

Posted on 2 July 20263 July 2026 by Farazia Gillani

Buying or selling a rental property can be one of the most financially rewarding moves a landlord makes, but it can also trigger a surprising number of tax obligations if you’re not properly prepared. From Stamp Duty Land Tax at the point of purchase to Capital Gains Tax when you sell, understanding how to manage rental property purchases and sales efficiently can save you thousands of pounds over the lifetime of an investment.

This guide walks through the key tax considerations UK landlords need to know, along with practical strategies to keep your tax bill as low as legally possible, whether you’re growing a portfolio or planning an exit.

Understanding Tax on Rental Income

Before getting into buying and selling, it’s worth understanding how property income tax works day to day, since this shapes many of the decisions you’ll make around acquisitions and disposals.

Rental income is added to your other earnings and taxed at your marginal Income Tax rate – 20%, 40% or 45% depending on your total income for the year. You can deduct allowable expenses before working out your taxable profit, including:

Letting agent and management fees
Landlord insurance
General maintenance and repairs (not improvements)
Council tax and utility bills paid on the tenant’s behalf
Accountancy fees

Since the phased withdrawal of full mortgage interest relief, individual landlords now receive a 20% tax credit on mortgage interest rather than deducting it fully from profits. This has pushed many landlords to consider whether buying through a limited company structure makes more sense, particularly for higher-rate taxpayers, as company profits are taxed at Corporation Tax rates rather than personal Income Tax rates.

Tax Considerations When Buying a Rental Property

Every purchase decision has tax consequences that extend well beyond the purchase price.

Stamp Duty Land Tax (SDLT)

Landlords buying additional residential property in England and Northern Ireland pay a surcharge on top of standard SDLT rates. This applies whether you’re buying your first buy-to-let or your tenth, and it’s calculated on the full purchase price using a banded system. Getting your SDLT calculation right at completion avoids costly amendments later, and in some cases, claiming back overpaid SDLT (for example, on mixed-use or multiple dwellings purchases) can be a legitimate way to reduce upfront costs.

Choosing the Right Ownership Structure

Deciding whether to buy as an individual, jointly with a spouse or partner, or through a limited company is one of the most important tax decisions you’ll make. Each route affects:

How profits are taxed annually
Mortgage interest relief treatment
Future Inheritance Tax planning
The tax due when you eventually sell

A limited company structure can be attractive for landlords planning to reinvest profits and build a larger portfolio, while personal ownership may suit those wanting simpler access to rental income.

Best Tax Strategies for Rental Property Purchases and Sales

Getting the timing and structure right across purchases and sales of rental property is where genuine tax savings are made. Some proven approaches include:

1. Spreading purchases and sales across tax years

If you’re disposing of more than one property, selling them in different tax years allows you to use more than one capital gains tax annual exempt amount, rather than wasting it in a single year.

2. Transferring ownership shares between spouses or partners

Transfers between spouses or civil partners are exempt from capital gains tax, so shifting ownership before a sale can help utilise both individuals’ tax bands and allowances.

3. Offsetting gains with losses

Capital losses from other investments or previous property disposals can be carried forward and used to reduce a taxable gain in the year of sale.

4. Timing improvements before a sale

Capital expenditure on genuine improvements (not repairs) can be added to your cost base, reducing the taxable gain when you sell.

5. Considering incorporation for long-term portfolios

Some landlords with substantial portfolios incorporate their holdings into a limited company, though this needs careful planning around Capital Gains Tax and SDLT on the transfer itself.

Tax on Property Sales: Capital Gains tax Tax Explained

When you sell a rental property, property sales tax typically forms capital gains tax (CGT) on any increase in value since you bought it.

Key points to know:

UK residential property sales by landlords must be reported to HMRC, and any CGT owed paid, within 60 days of completion.
The gain is calculated as the sale price minus the original purchase price, allowable buying and selling costs (such as solicitor and estate agent fees), and the cost of qualifying improvements.
Basic-rate taxpayers and higher/additional-rate taxpayers pay CGT at different rates on residential property gains, so your overall income level in the year of sale matters.
Everyone has an annual CGT exempt amount, which has been significantly reduced in recent years, making early planning more important than ever.

Read: Capital Gains Tax for landlords reshapes the buy-to-let sell-off

Strategies to Reduce Tax When Selling

A second area where tax efficiency matters is, again, tax on property sales, particularly around how and when you structure a disposal.

Use your annual exemption wisely – don’t let it go unused if you’re planning multiple disposals.
Deduct every allowable cost – legal fees, agent fees, and even costs of establishing the property’s value at purchase can all reduce the taxable gain.
Consider part-disposals – selling a share of a jointly owned property over more than one tax year can spread the gain.
Keep meticulous records – HMRC may ask for evidence of improvement costs, so retain invoices and receipts from day one of ownership.
Seek professional advice before exchanging contracts – once a sale is agreed, your tax planning options narrow considerably.

Common Mistakes Landlords Make

Forgetting the 60-day CGT reporting deadline after completion
Confusing repairs (deductible against income) with improvements (deductible against capital gains)
Not accounting for the SDLT surcharge when budgeting for a purchase
Failing to plan ownership structure before exchange, when changes are harder and costlier to make
Overlooking how rental income tax bands interact with CGT bands in the year of sale

Final Thoughts

Managing the tax side of rental property well comes down to planning ahead rather than reacting after the event. Whether it’s choosing the right ownership structure before you buy, keeping thorough records throughout your ownership, or timing a sale to make the most of allowances, small decisions made early can have a significant impact on your overall tax position. Given how frequently property tax rules change in the UK, it’s worth speaking to a qualified accountant or tax adviser before any major purchase or sale to ensure your strategy reflects current legislation. Contact Apex Accountants today for expert guidance on rental property purchases and sales and property tax compliance. Our team of tax relief for landlords offers tailored solutions to manage your rental property purchases and sales effectively. Let us help you navigate the complexities and secure your financial future.

Frequently Asked Questions

Do I pay tax on rental income if I make a loss overall?

No, if your allowable expenses exceed your rental income, you have no taxable profit for that property in that year. However, you must still report the figures on your self-assessment tax return, and losses can often be carried forward to offset future profits.

How soon after selling a rental property do I need to pay capital gains tax?

UK residents must report and pay any CGT owed on residential property within 60 days of completion, using HMRC’s online CGT reporting service.

Can I avoid Capital Gains Tax by reinvesting the proceeds into another rental property?

Unlike some business assets, there’s no general rollover relief for residential rental properties, so reinvesting proceeds does not automatically avoid CGT. Specific reliefs may apply in limited circumstances, so professional advice is recommended.

Is it better to own rental property personally or through a limited company?

It depends on your income tax band, long-term plans, and how you intend to use rental profits. Limited companies can offer tax advantages for larger portfolios but come with additional administrative responsibilities and different rules around extracting profits.

What expenses can reduce tax on rental income?

Allowable expenses include letting agent fees, insurance, repairs, ground rent, service charges, and a portion of mortgage interest (via the 20% tax credit). Capital improvements aren’t deductible against income but can reduce a future capital gains tax bill instead.

Does buying a second rental property always mean paying the SDLT surcharge?

In most cases, yes, additional residential properties attract the SDLT surcharge in England and Northern Ireland, regardless of whether it’s your second or your tenth. There are some exceptions, so it’s worth checking your specific circumstances with a conveyancer or tax adviser.

Are Schools Closing Because of the Private School VAT Change?

Posted on 4 June 20264 June 2026 by Farazia Gillani

Since the private school VAT change, effective 1 January 2025, private school tuition and boarding in the UK have been subject to 20% VAT, and from 1 April 2025 most charitable schools in England lost business rates relief.

This has shifted the question from “will fees rise?” to “can even larger schools cope?” Pressure is evident across the independent school sector. Pupil numbers in England fell between January 2025 and January 2026, and several schools were removed from the register in 2024. At the same time, new schools continued to open in 2025 and 2026, showing that the sector is both being squeezed and reshaped simultaneously.

How Schools Are Affected by the Private School VAT Change

Change	When It Applied	Why It Matters
VAT on private school education and boarding	1 January 2025	Core tuition and boarding fees are now standard-rated
Prepayments caught	Payments from 29 July 2024 for terms starting on or after 1 Jan 2025	Paying early did not always avoid VAT
Loss of charitable business rates relief (England)	1 April 2025	Many schools lost the 80% mandatory discount unless an exception applied

The business rates change is significant because charitable relief had previously reduced bills by 80%. Schools focused on pupils with EHCPs generally keep this relief.

A key point is that 20% VAT does not automatically mean fees rise by 20%. Schools can reclaim input VAT, leaving an average net VAT cost of about 15% of fee income. Average fee rises of around 10%, though some schools absorb more costs and others pass on more to parents.

Read: Everything About HMRC v Colchester Institute VAT Dispute

Why Larger Schools Are Now Affected

The pressure isn’t just about one tax. In England, there are 2,474 private schools, of which 1,127 are charities. Around 1,024 of these schools lost charitable rates relief.

Average extra business-rates cost: £308 per pupil in 2025/26
For schools with over 1,000 pupils, per-pupil increase: £288
Total cash impact for large schools: £374,000 per school

Even though smaller schools face higher per-pupil increases, large schools still face significant total costs, especially with staffing, estates, and borrowing commitments.

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Most schools will not immediately close. They may first:

Use reserves
Cut non-essential spending
Raise fees

Financial pressure can build over time before a school reaches a breaking point.

Are Larger Private Schools Actually Closing?

Yes, closures are happening, but context matters.

58 independent school closures in England in 2024
85 closures in 2023
63 closures in 2022

This includes voluntary closures and regulatory removals. VAT alone cannot be blamed. The impact of VAT is difficult to predict in terms of how many additional closures will result.

Since 2000, England averages 74 closures and 83 new openings per year, showing a natural turnover.

Larger schools are under more financial pressure, pupil numbers are down, and some bigger schools are no longer shielded from challenges previously felt mostly by smaller schools.

What Schools and Parents Should Check

Practical steps matter more than headlines.

Check fee packaging: Bundled tuition may have one VAT treatment, while extras like meals or transport may be separate.
Understand exemptions: Nursery classes made up almost entirely of children under school age remain exempt. Care-based before- or after-school clubs can also stay VAT-exempt.
SEND placements: VAT applies to the fee, but local authorities can reclaim it when funding an EHCP placement.
Treat VAT recovery technically: Partial exemption and input VAT calculations are required for most schools.
Use official tools: Services like “Get Information about Schools” let parents compare school finances and performance.
Check registration fees: Application and registration fees are treated like normal tuition for VAT purposes.

Read: Getting Your Business Ready for the Summer’s Temporary VAT Cut

How We Help Private Schools Deal With VAT

At Apex Accountants, we support independent schools with the practical side of VAT changes:

VAT registration reviews and timing checks
Partial exemption and input VAT recovery calculations
Fee structure reviews for tuition, boarding, meals, clubs, and bursaries
Cash-flow and budget modelling for VAT and business rates changes
Support on restructuring, mergers, and orderly closure planning

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Conclusion

The biggest mistake is to reduce this story to a simple slogan. VAT and the loss of business rates relief have definitely increased pressure; pupil numbers in England’s independent sector have fallen for two consecutive years, and closures continue, but this does not isolate VAT as the sole cause and does not yet prove a clear wave of private-school closures in the UK.

A more accurate headline would be this: larger private schools are no longer protected from the same financial pressures that have already hit smaller schools, but the official evidence still points to a sector in costly transition, not a one-line collapse story.

FAQs on Private-School Closures in UK

When did VAT start on private school fees?

From 1 January 2025, with certain prepayments made from 29 July 2024 also caught if they related to terms starting on or after 1 January 2025.

Does VAT on fees mean schools had to raise prices by the full 20%?

No. Official estimates point to an average fee rise of around 10%, not a flat 20%, because schools can reclaim input VAT on relevant costs.

Is the business rates change a UK-wide policy?

No. VAT on fees applies across the UK, but the removal of charitable business rates relief applies in England.

Are larger schools always hit harder than smaller ones?

Not necessarily on a per-pupil basis: in the matched cohort, schools with more than 1,000 pupils show a lower per-pupil rates increase than very small schools, but their cash increase per school is still large.

Are nursery classes in private schools still exempt from VAT?

Yes, where they are wholly, or almost wholly, made up of children below compulsory school age.

What about after-school clubs and holiday clubs?

Educational extracurricular activities are taxable, but childcare-based before- or after-school clubs and holiday clubs that consist of care are exempt.

Can local authorities reclaim VAT on private school placements?

Yes, where the placement is funded by the local authority and the school is named in the pupil’s EHC plan, the local authority can reclaim the VAT through existing processes.

Do bursaries remove the VAT charge?

Not usually. Where a separate bursary funds part of a specific child’s fee, VAT still applies to the full fee; only a school funding its own bursary to itself is outside scope.

Are registration or application fees also caught?

Yes. Application and registration fees that must be paid for a pupil to attend are treated the same as normal school fees for VAT.

Do official figures prove that VAT is already causing a wave of large private school closures?

No. Official closure data mixes voluntary closures with regulatory removals, and the policy impact note says it is difficult to assess how many extra closures the measure will cause.

Getting Your Business Ready for the Summer’s Temporary VAT Cut

Posted on 4 June 20264 June 2026 by Farazia Gillani

A temporary VAT cut of 5% will apply from 25 June 2026 to 1 September 2026 on certain children’s meals, children’s and family tickets, and admission to qualifying family attractions. Preparing your systems, menus, ticket types, and records before 25 June will make summer trading smoother and autumn VAT returns easier to manage.

At Apex Accountants, we treat the task as a sales-mapping job first and a VAT-return job second. Knowing exactly which items qualify makes a busy summer manageable.

What You Need To Know About The Summer VAT Cut

The 5% VAT cut replaces the standard 20% rate for qualifying sales during the relief window and applies across the UK.

The 5% VAT relief covers three main areas:

Children’s meals sold only as children’s meals and eaten on the premises
Children’s tickets for cinemas, theatres, concerts, exhibitions, and shows
Admission to attractions suitable for families, including adult admissions when part of a qualifying family package

A theme park ticket for adults can fall within the temporary 5% rate, but an adult-only cinema ticket does not; for cinemas and theatres, the relief focuses on children’s tickets and family packages.

Examples of possible reductions if the full saving is passed on include:

£20 off family theme park tickets
£11 off family aquarium tickets
£2 off children’s meals

If your business is not VAT-registered, this is not a rate change you can apply in the usual way.

Read: Everything About VAT Return Deadlines in the UK

Temporary VAT Cut – Which Sales Qualify and Which Do Not

Sale Type	Temporary Rate	Notes
Children’s meal on a dedicated menu, on site	5%	Must be held out for sale only as a meal for children
Fixed-price children’s meal including drink/dessert	5%	Whole package qualifies if sold as one meal
Smaller adult portion sold cheaply	Normal rate	Not eligible
Takeaway children’s meal	Normal rate	Takeaways do not qualify
Children’s cinema/theatre ticket	5%	Must be marketed, priced, and presented as a children’s ticket
Adult cinema/theatre ticket sold on its own	Normal rate	Adult-only admissions stay standard-rated
Family cinema/theatre ticket including at least one child	5%	Whole family package can qualify
Generic group ticket not sold as family ticket	Normal rate	Does not qualify
Zoo, soft play, museum, or theme park admission	5%	Applies to the right of admission only
Food, merchandise, or upgrades sold separately	Normal rate	Only admission charge is reduced
Sports event entry, facility use, or participation	Not covered	Excluded
Season/repeat-entry passes beyond relief period	Usually not covered	Only fully qualifying passes within period count

The key is not who buys the item, but how it is sold. Items must be marketed, priced, and presented as intended for children.

A proper children’s menu is stronger than simply offering “small plates” from the adult menu
A clear “family ticket” is safer than a vague multi-buy group ticket

Non-alcoholic drinks included in a children’s meal can qualify. Meals including alcohol or separately priced extras from the standard menu remain standard-rated.

Admission is only reduced where it would otherwise be standard-rated. Exempt admissions are not affected.

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How to Prepare Pricing, Tills, and Records

Start with your stock codes and ticket codes rather than marketing. Your point-of-sale system must separate 5% sales from standard-rate sales.

Staff should operate the system correctly, even during busy periods. Keeping daily gross takings by rate, adjustments, and working papers will help manage VAT efficiently.

Practical Steps

List every potentially affected item — children’s meals, child tickets, family tickets, adult attraction tickets, bundles, and passes
Rename anything unclear to match eligibility
Program separate codes for 5% and standard-rate sales
Test mixed baskets such as adult ticket + child ticket + merchandise, or children’s meal + extra standard-menu item
Check website wording and online booking flows to ensure descriptions match tax treatment
Decide your pricing approach now to avoid mid-summer changes
Diary the switch-back date so rates return to normal after 1 September
Ensure receipts and VAT invoices show tax points, item descriptions, and rates

VAT-inclusive pricing fractions: 1/6 for 20% and 1/21 for 5%, which affects the tax element inside a gross price.

Also Read: VAT on Car Hire in the UK – What Businesses Need to Know

Summer VAT Cut on Booking and Bundle Considerations

Tickets bought for dates after 1 September remain standard-rated
Prepaid tickets for dates within the relief window can be adjusted; credit notes may be needed
Bundles (admission + meal + merchandise) must be split; only the qualifying portion can get 5%
Season passes covering dates outside the relief period usually do not qualify

How We Help Small Businesses Take Advantage of The 5% VAT Relief

Apex Accountants helps small businesses implement clean processes for VAT changes. We assist with:

Reviewing menus, ticket types, and family packages for eligibility
Mapping 5% and standard-rate items in tills, EPOS, and booking systems
Checking advance bookings, prepayments, and credit-note adjustments
Reviewing invoices, receipts, and bookkeeping records for mixed-rate sales
Preparing supporting schedules for VAT returns

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Conclusion

The summer relief is useful, but it is narrow. The main focus is on how items are sold, whether the sale is really a qualifying meal or admission, and when the right of admission actually falls, so small businesses should prepare around those three tests first.

The best plan is this: sort your qualifying items, fix your till and online checkout, test mixed transactions, and set a reminder for the switch back after 1 September. Done early, this is manageable; left late, it becomes a front-desk problem in the middle of your busiest weeks.

FAQs on 5% VAT Cut

Does the temporary 5% VAT rate start on 25 June 2026?

Yes. The official relief window runs from 25 June 2026 to 1 September 2026 inclusive.

Is the relief available across the whole UK?

Yes. The official fact sheet states that it applies in England, Wales, Scotland and Northern Ireland.

What counts as a children’s meal?

It must be held out for sale only as a meal for children and supplied by a restaurant, café or similar establishment for consumption on the premises. The key test is how it is marketed, presented and priced, not simply who eats it.

Does takeaway food qualify for a temporary VAT cut?

No. The detailed brief is clear that takeaway meals do not qualify for this temporary reduced rate.

If I sell a smaller adult portion, can I treat it as a children’s meal?

Not automatically. Smaller portions, lower-calorie options and discounted adult meals are specifically excluded unless they are genuinely sold as children’s meals.

Do adult cinema or theatre tickets qualify for 5% VAT?

Not when sold on their own. For cinemas, theatres, concerts, exhibitions and shows, the relief applies to children’s tickets, and adult admissions remain standard-rated unless they are part of a qualifying family ticket.

Do family tickets qualify even if they include adults?

Yes, where the ticket is sold as a family admission that includes one or more children. In that case, the whole family package can qualify.

Which attractions are covered?

The official list includes attractions such as theme parks, fairs, circuses, adventure parks, museums, zoos, aquariums, wildlife parks, farm visitor attractions, soft play and observation attractions. The reduced rate applies only to the right of admission, not to separately sold food, merchandise or upgrades.

Are sports events or sports facilities included?

No. The relief does not apply to admission to sports events, use of sports facilities, or participation in recreational sport.

What if customers booked early or bought a pass?

For admissions, what matters is the date of admission within the relief window. Advance sales can use the lower rate under the existing change-of-rate rules, but tickets for admission on or after 2 September 2026 stay standard-rated, and many season or repeat-entry passes running beyond the relief period will not qualify.