Van Tax Changes and How they Affect Employer Vehicle Costs Posted on 25 September 20261 October 2026 by Rida Ahmed Many UK businesses use double cab pick-ups for work, with some private use allowed. Until recently, these vehicles often sat in a helpful “van” tax position. That changed from 6 April 2025. HMRC now expects most double cab pick-ups to fall under company car rules for direct tax, which can push up both employee tax and employer costs. This guide explains van tax changes, who gets hit, and what practical steps to take. Van Tax Changes in April 2025 From 6 April 2025, HMRC stopped aligning the “car vs van” position for double-cab pick-ups with the VAT payload approach. Instead, HMRC applies a “primary suitability” test for employment tax. HMRC’s view is that most double cab pick-ups can carry people and goods with no clear dominant goods purpose, so they will usually count like cars for benefit-in-kind (BIK). Why this can double the bill 1) BIK works very differently for vans vs cars. Van BIK uses a flat-rate charge. For 2026/27, the van benefit charge is £4,170 and the van fuel benefit charge is £798.That means the employee’s tax cost on the van benefit can look like this: Basic rate (20%): £4,170 × 20% = £834 Higher rate (40%): £4,170 × 40% = £1,668 Car BIK uses the list price × a CO₂-based percentage. The percentage can be high on many diesel pick-ups, so the taxable benefit can jump fast. Here is a straightforward example (not a quote, but rather the standard calculation method): List price: £45,000 BIK rate 37% Taxable benefit: £16,650 Basic rate tax: £3,330 Higher rate tax: £6,660 That is why many firms see costs “double” or more when the classification flips. 2) Private use rules bite harder for cars. With a car, private availability can trigger a taxable benefit. For vans, the tax treatment depends on whether the restricted private use conditions are met. GOV.UK provides specific guidance on when company cars and vans available for private use create a benefit charge. So a move into car rules can create a tax charge where there was none. 3) Employer costs rise too. Employers generally pay Class 1A National Insurance on taxable vehicle benefits. For 2026/27, the Class 1A NIC rate is 15%, so a higher taxable BIK can also increase the employer’s National Insurance cost. Changes in Business Deductions Capital allowances: less upfront relief For capital allowances, HMRC changed its approach for expenditure incurred: From 1 April 2025 (Corporation Tax), and From 6 April 2025 (Income Tax) Most double-cab pick-ups will fall under car tax rules, which can restrict fast, upfront relief compared with a vehicle treated like plant and machinery. Lease cost restriction For leased vehicles, the car leasing restriction can apply where CO₂ emissions exceed 50 g/km, generally restricting 15% of qualifying rental costs. Transitional treatment was also applied to certain double cab pick-up contracts entered into before the April 2025 changes where expenditure was incurred before 1 October 2025. VAT: the payload approach still stands. HMRC states the VAT input tax position remains unchanged. So VAT treatment does not automatically follow the new direct tax position. Transitional Rules This is the first thing to check. Employment tax transition (BIK) If you purchased, leased, or ordered a double cab pick-up before 6 April 2025, you can usually keep the earlier “van” treatment until the earlier of: disposal lease end 5 April 2029 Capital allowances transition For capital allowances, transitional rules can apply where the contract was entered into before the relevant April 2025 date and expenditure is incurred before 1 October 2025. Get Free Consultation Call Anytime 0203 883 4777 Get Free Consultation Practical steps businesses should take now Step 1: Map your fleet by key dates. Create a list of every affected vehicle: purchase date, order date, lease start date date first made available to the employee who uses it and how expected replacement cycle before April 2029 This quickly shows which vehicles sit inside transitional protection. Step 2: Review private use in writing If you want a van outcome for any vehicle that still qualifies: tighten policy wording restrict private mileage record business journeys consider secure overnight parking at business premises where practical Step 3: Re-run the real cost. Do not guess. Cost it out per vehicle: employee tax under car BIK employer Class 1A NIC impact fuel benefit exposure reduced capital allowances or lease restrictions Businesses can also use our payroll services including company vehicle Benefit-in-Kind reporting to help manage payroll calculations and vehicle benefit reporting accurately. Step 4: Consider alternatives before renewing. Depending on your operations, options may include: a vehicle that clearly fits “goods vehicle” use and construction different fleet mix (van plus occasional hire car) mileage reimbursement rather than a benefit vehicle low-emission choices where company car tax tends to sit lower How We Can Help Businesses Navigate Vehicle Tax Rules Apex Accountants supports businesses that provide company vehicles to staff, including trades, construction, rural firms, logistics teams, and service companies. Our services typically cover: Reviewing vehicle tax rules to confirm the correct car or van classification and assess risk Benefit-in-kind planning to reduce unnecessary tax charges for employers and employees PAYE and P11D support, including accurate reporting and process improvements Capital allowances reviews covering purchase versus lease decisions, timing, and claims VAT guidance on input tax recovery and evidence of business use Drafting written policies on private use, record keeping, and audit trails FAQs About Van Tax Changes 1. Are all double-cab pick-ups now taxed like cars? HMRC expects that most double cab pick-ups will be taxed like cars due to the “primary suitability” test. Some exceptions may exist, but you need a facts-first review. 2. I leased or ordered before 6 April 2025. Do I get protection? Often, you will have protection until the earlier of the disposal, the end of the lease, or 5 April 2029, provided you meet the conditions. 3. Does VAT treatment change too? HMRC says VAT treatment remains on its own rules. Direct tax changes do not automatically rewrite VAT treatment. 4. What is the van benefit charge for 2026/27? The van benefit charge for 2026/27 is £4,170, while the van fuel benefit charge is £798. Eligible zero-emission vans continue to have a van benefit charge of £0. Conclusion These “van tax” changes are a classification shift. For many double-cab pick-ups, HMRC now applies company car tax rules. Such changes can increase BIK, limit tax relief, and raise employer costs. Start with the key dates. Determine whether transitional protection applies. Then run the numbers for each vehicle before making renewal decisions. If you are unsure how the changes affect your business or fleet, speak to Apex Accountants. We can review your vehicles, assess the tax impact, and help you plan the next steps with confidence.
Can You Reclaim VAT on Transaction Fees in the UK Posted on 24 September 202629 September 2026 by Farazia Gillani Most businesses ask this as a yes-or-no question, but UK VAT does not work that neatly. Whether a business can reclaim VAT on transaction fees depends on who received the service, what the transaction was for, and whether the cost links to taxable business activity rather than a passive investment or an exempt share sale. How VAT on Deal Fees is Applied in Various Situations Deal situationUsual VAT outcomeA trading company issues new shares to raise funds for its taxable businessOften recoverable under the normal rules, because a new share issue is not a VAT supply in itself. If the issue supports economic activity, the related VAT can be input tax, subject to partial exemption if relevant. A passive holding company buys shares to earn dividends or sell later for gainUsually not recoverable. Pure shareholding for dividends or capital growth is treated as investment activity, not taxable business activity. A holding company buys a subsidiary and supplies genuine management services for real considerationOften recoverable, but only if the holding company is the recipient of the adviser services, carries on economic activity, and makes taxable supplies. Partial exemption can still reduce the claim. An acquisition is a direct extension of an existing taxable tradeOften recoverable. Such as buying a competitor, a key supplier, a key customer, or a property-owning subsidiary from which the buyer intends to trade. A business sells existing sharesUsually restricted or blocked, because the sale of existing shares is normally an exempt supply. If the share sale is only incidental to the wider business, there are special partial exemption rules rather than an automatic full block. The target company incurs vendor due diligence costsRecovery can be possible for the target if the target is the actual recipient of the services and they were received for its own business. A deal aborts after fees have been incurredRecovery can still be possible if there is genuine, objective evidence of an intention to make taxable supplies. Failed projects do not automatically destroy recovery. How VAT Applies to Common Payment Processing Fees VAT treatment can vary between payment providers and by the type of service supplied. While many financial services are VAT-exempt, technical or administrative payment-processing services do not automatically qualify for that exemption. Businesses should therefore check the provider’s invoice, the contracting entity and the nature of each charge before treating transaction fees as recoverable input VAT. Stripe Stripe fees are not automatically VAT-exempt. Card-processing services can be subject to standard-rated VAT where the service is treated as taxable payment processing. The exact VAT treatment can depend on which Stripe entity provides the service, whether the supply is made from the UK or cross-border, and the particular service being charged for. Different treatment may apply to services such as terminal hardware, platform fees, payouts or other additional features. Where the supply is cross-border, businesses may also need to consider whether the reverse charge applies. PayPal Some core PayPal payment services may qualify for the VAT exemption that applies to certain financial services, particularly where the service involves the transfer or movement of funds. However, this does not mean every PayPal charge is VAT-exempt. Additional merchant services, administrative charges and other ancillary services can have different VAT treatment. Businesses should review the individual charge and supporting invoice rather than assuming all PayPal fees receive the same VAT treatment. GoCardless GoCardless generally charges standard-rated VAT on UK transaction fees. Since April 2020, its UK transaction fees have been treated as taxable supplies rather than VAT-exempt financial services. Where VAT is correctly charged, a VAT-registered business may be able to reclaim it subject to the normal input tax recovery rules and the use of the service for taxable business activities. Traditional Banks Many core banking services are VAT-exempt under the financial services exemption. This commonly includes standard banking and payment services. However, banks may also provide additional or ancillary services that are taxable. Charges for certain administrative, advisory or other non-financial services may therefore include VAT. For VAT recovery on bank charges, businesses should check each charge individually to confirm whether VAT has actually been applied and whether it is recoverable under the normal input tax rules, rather than assuming every fee on a bank statement is VAT-exempt. Why Payment Processing Fees Are Not Always VAT-Exempt The VAT exemption for financial services does not automatically extend to every service involved in making or receiving a payment. Following court decisions including Bookit and NEC, HMRC distinguishes between services that actually perform an exempt financial transaction and technical or administrative services that simply facilitate card payments. Card-handling and processing services that only enable a customer to make a payment can therefore be standard-rated at 20%. The key point is that a transaction fee does not automatically contain reclaimable VAT. Businesses should check whether VAT has actually been charged, identify what service the fee relates to and confirm that the normal input tax recovery conditions are met before including it on a VAT return. What Decides Whether to Reclaim VAT on Transaction Fees Three questions usually decide the result. Was the fee incurred in taxable business activity? Is there a direct and immediate link between that cost and taxable supplies? Is the business claiming the VAT actually the recipient of the service? That is why labels like “legal fee”, “corporate finance fee” or “due diligence fee” do not settle the point on their own. The same type of cost can be recoverable in one structure and blocked in another, simply because the underlying activity is different. Get Free Consultation Call Anytime 0203 883 4777 Get Free Consultation Importance of the Invoice Trail A second point is often missed: the invoice trail matters. Whether the claimant contracted for the service, was invoiced, paid for it, and made use of it, while general VAT record rules also require valid VAT invoices and records that support the claim. Using professional accounting services can also help ensure adviser invoices, payments and supporting records are captured consistently before the VAT return is prepared. Partial Recovery for Mixed Activity If a business has both taxable and exempt activity, it may only recover the taxable portion unless the de minimis rules help. The current de minimis limit is £625 per month on average and no more than half of the total input tax, with an in-period check and a year-end review. Practical Takeaways Decide early on the recipient entity: Decide before the first engagement letter is signed which entity should receive the service, because attribution is based on actual or intended use when the purchase is received. Give the holding company a real taxable role: If a holding company is meant to recover VAT, give it a real taxable role. Genuine management services for more than nominal consideration are a strong starting point. Expect partial exemption with loans: If the structure also includes interest-bearing loans, expect partial exemption to enter the picture. Don’t ignore the year-end de minimis review: A claim that looks acceptable during the year can be clawed back later if the annual test fails. Read: Court of Appeal ruling puts VAT on education grants under scrutiny How common deal structures are treated Share acquisitions through a holding company A holding company does not get recovery just because it owns subsidiaries. If it only holds shares, receives dividends and hopes for a later sale, that is investment activity, and the VAT on acquisition costs is normally not recoverable. The position improves where the holding company buys the subsidiary to make taxable management services for consideration. The acquisition costs of such a holding company are part of its general overheads, so the VAT can be deductible only if the holding company receives the adviser services and makes taxable supplies. A practical observation here is that vague plans do not help much. If the structure only contemplates charging the subsidiary “at some point later” or only if profits allow, that is weak; official case summaries and guidance both stress the need for genuine, priced services and real consideration. Acquisitions that strengthen an existing trade Not every acquisition needs a separate management charge to support recovery. Share acquisition can sometimes be a direct, continuous and necessary extension of an existing taxable trade, such as buying a competitor, a key supplier, a key customer, or a property-owning subsidiary from which the buyer plans to trade. That is a useful point in real deals. If a trading business buys a company to reinforce its own trading operation, the fee can sometimes sit with the buyer’s existing taxable business rather than a standalone investment case. Get Free Consultation Call Anytime 0203 883 4777 Get Free Consultation Share Sales and VAT A sale of existing shares is normally an exempt supply. That is why VAT on legal and advisory fees linked directly to a share disposal is usually a problem, and a wider commercial reason for the sale does not automatically fix it. Immediate Transaction Matters That last point matters. Selling shares to raise money for wider taxable trading does not by itself turn the disposal fees into recoverable VAT, because the immediate transaction still matters. Restructuring Context There is, though, an important nuance. Some disposals in a restructuring context may fall within economic activity where the disposal is a direct, permanent and necessary extension of the taxable business, but this is fact-sensitive and should never be assumed. Standard Partial Exemption Method If the business uses the standard partial exemption method and a share sale is merely incidental to the main business, the value of that share sale should be excluded from the standard method calculation. The VAT on the related costs is then dealt with using normal attribution rules rather than by simply including the deal in the denominator and accepting the result. Special Method and Residual Costs If the business uses a special method, certain residual costs on incidental share sales must be apportioned by use. Costs such as: Accountants Financial advisers Lawyers Advertising agencies Marketing consultants Listing and registration services Document preparation services Share Sales Are Not TOGC One other point saves confusion in practice: a share sale is not a TOGC. Where a limited company changes hands by way of a share transfer, the assets remain owned by the company, so there is no asset transfer to which TOGC rules apply. Fundraising and VAT A new share issue is treated differently from a sale of existing shares. The issue of new shares is not a supply for VAT purposes, and related VAT can be recoverable to the extent the issuer’s business generates taxable supplies. Target-Side Fees On the seller side, the target company’s own fees can sometimes be overlooked. Vendor due diligence and similar costs incurred by the target may be deductible where: The target is the recipient of the services The services were received for the target’s business Aborted Deals Aborted deals are not automatically lost causes either. If there was genuine objective evidence that the business intended to make taxable supplies, preparatory VAT can still be recoverable even where the project fails before those supplies are made. A Must Read: Everything About VAT Return Deadlines in the UK Check the Adviser’s VAT Status Also check whether there is actually any VAT on the adviser bill in the first place. Pure advice, such as advice on capital raising or defending takeovers, is taxable A genuine intermediary service in a securities transaction can itself be exempt if it meets the exemption conditions Get Free Consultation Call Anytime 0203 883 4777 Get Free Consultation How to improve the chances of recovery before the deal closes The biggest practical point is timing. VAT attribution is based on how the service is used, or intended to be used, when the service is received, so sloppy structuring at the start of the deal is hard to repair later. In real transactions, the weak spot is often not the technical rule. It is the evidence pack: the engagement letter is in one company’s name, the invoice is sent to another, and the payment comes from a third. That makes it much harder to show who really bought and used the service. Document or stepWhy it mattersEngagement letter in the right entity’s nameHelps show which business contracted for the service and was the recipient. VAT invoice in that same entity’s nameA recoverable claim needs a valid VAT invoice and records that support it. Payment trailOfficial guidance on recipient status looks at who paid for the service as well as who contracted and who used it. Board minutes, deal papers and business planThese can provide objective evidence of intended taxable supplies, especially where the deal never completes or charges begin later. Management services agreement with a real charging modelHelps show that services are genuine, for consideration, and more than nominal. Actual management invoices after completionStrong evidence that the structure reflected real taxable activity rather than a vague future intention. Partial exemption workingsEssential where deal fees support both taxable and exempt activity, including share sales or exempt lending. Six-year retention of VAT recordsVAT records generally need to be kept for at least six years. A final but important point is VAT grouping. Joining a VAT group does not automatically create recovery, and it does not turn passive investment activity into taxable business activity. Where claims usually break down The most common failure point is assuming that “commercial purpose” is enough. It is not enough to say the deal helped the group overall; what matters is the VAT link between the cost and taxable outputs. Other problem areas come up again and again: Passive holding activity dressed up as a business activity. Receiving dividends and holding shares is not enough on its own. Management services that are never properly priced or invoiced. A loose intention to charge later is weak evidence. Assuming a later VAT group will rescue old acquisition VAT. It does not do that automatically. Invoices and contracts sitting with the wrong entity. The claimant still needs to show it received, used and paid for the services. Forgetting the share-sale rules in partial exemption. Incidental share sales have their own treatment under both standard and special methods. Ignoring the possibility that the adviser’s own service was exempt. Pure advice is usually taxable, but some intermediary work in securities transactions can be exempt instead. Missing the annual de minimis re-test. Recovery allowed during the year can still be reversed at year end. A smaller but still important trap is “stewardship” or group overhead costs. Some group audit, legal, regulatory, brand defence and bid defence costs may really belong to the group as a whole, even if the holding company receives the invoice for convenience. How Apex Accountants Can Help Reclaim VAT on Transaction Fees At Apex Accountants, we keep this area practical. Our focus is not just on whether VAT looks reclaimable in principle but on whether the contract, invoice trail, management model and partial exemption position actually support the claim. We help clients with: reviewing legal, due diligence, corporate finance and other transaction fees line by line checking which entity should contract for, receive and pay each adviser building evidence for management charges, intended taxable supplies and aborted deals calculating partial exemption, de minimis and pre-registration claims reviewing VAT grouping points before and after completion preparing clear support packs for internal sign-off and external review Get Free Consultation Call Anytime 0203 883 4777 Get Free Consultation Conclusion VAT recovery on deal fees is possible, but it is rarely automatic. The strongest claims usually involve one of two positions: the fee sits inside an existing taxable business, or the acquiring company is carrying on real taxable activity and can prove it with proper documents and real charges. Claims usually fail for the opposite reasons. The structure is really an investment; the fee links to an exempt share sale, the wrong entity received the service, or the paperwork does not match the story the business wants to tell. FAQs on VAT on Deal Fees Can a holding company reclaim VAT on acquisition fees? Yes, but not just because it is a holding company. Recovery normally depends on the company being the recipient of the adviser services, carrying on economic activity, and making taxable supplies such as genuine management services for consideration. What if the holding company only receives dividends? That usually points the wrong way. Simply holding shares for dividends or a later capital gain as investment activity, not taxable business activity. Do management charges need to be real and priced? Yes. The services need to be genuine, provided for consideration that is more than nominal, and not left as a vague future idea that may or may not be billed later. Does the invoice need to be in the claimant’s name? In practice, yes, that is the safest position. Whether the claimant contracted for the service, was invoiced, paid for it and used it, and normal VAT rules also require valid VAT invoices and records to support the claim. Does joining a VAT group automatically fix the issue? No. Joining a VAT group does not automatically create recovery and does not turn passive investment activity into taxable business activity. Can VAT on share sale fees be recovered? Usually not in full, because the sale of existing shares is normally an exempt supply. If the share sale is only incidental to the wider business, special partial exemption rules may soften the effect, but that is not the same as an automatic full reclaim. Can a partly exempt business still recover all the VAT? Sometimes. If the exempt input tax is no more than £625 per month on average and no more than half of the total input tax, the de minimis rules can allow full recovery, but the position must still be reviewed at year-end. Can the target company recover VAT on vendor due diligence? It can if the target is the real recipient of the services and the services were received for the purposes of the target’s own business. What if the deal aborts? A failed deal does not automatically kill the claim. Where there was genuine, objective evidence of an intention to make taxable supplies, preparatory VAT can still be recoverable even if the business never reaches the point of making those supplies. Can pre-registration VAT on deal fees be reclaimed? Potentially, yes. For services, normally a six-month lookback before registration, while goods can go back four years, but only where the costs were bought for the taxable business that is now registered.
What the HMRC Distributions Consultation 2026 Means for Company Owners Posted on 21 September 202630 September 2026 by Rida Ahmed Company directors considering a share buyback, capital reduction or restructuring now have another factor to consider. HMRC’s consultation, “Modernising the taxation of distributions and repayments of capital from companies”, examines whether several long-standing rules governing value extracted from companies should be changed. The HMRC Distributions Consultation 2026 opened on 23 June 2026 and closed on 14 September 2026. None of the consultation proposals has, by itself, changed the current law. The review matters because the tax consequences of extracting value from a company can differ materially depending on whether legislation treats the payment as an income tax distribution or a capital receipt subject to capital gains tax rules. For 2026/27, dividend rates are 10.75%, 35.75% and 39.35%, depending on the shareholder’s tax band, with a £500 dividend allowance. The main CGT rates for individuals are 18% and 24%. Qualifying gains eligible for Business Asset Disposal Relief are charged at the separate BADR rate of 18% for disposals from 6 April 2026. Quick Answer HMRC published the consultation on 23 June 2026, and it closed on 14 September 2026. The consultation has not itself changed the law. It examines seven areas of the distributions framework. The main focus is shareholders within the income tax charge, principally individuals and trusts rather than corporate shareholders. Areas under review include capital repayments, demergers, overseas taxation of company distributions, shareholder loans, share buybacks and transactions in securities. Businesses should continue applying current law while distinguishing carefully between existing rules and consultation proposals. What Is the HMRC Distributions Consultation 2026? The consultation is a government review of how distributions and certain repayments of capital from companies should be taxed when the shareholder is within the income tax regime. HMRC says much of the underlying distribution framework has remained substantially unchanged since Corporation Tax was introduced in 1965. HMRC is examining whether the existing rules remain appropriate where economically similar extractions can receive different tax treatment depending on their legal structure. The consultation covers seven areas Reductions and repayments of share capital Corporate demergers Distributions from non-UK resident companies The interaction between distributions and loans to participators Loans and other temporary extractions from certain non-UK resident companies Purchase of Own Shares Relief Transactions in securities rules The consultation is mainly concerned with shareholders subject to income tax. HMRC states that the proposals are not intended to affect corporate shareholders directly. Get Free Consultation Call Anytime 0203 883 4777 Get Free Consultation Have the Company Distribution Rules UK Changed Yet? No. The consultation itself has not changed the company distribution rules UK that companies and shareholders currently apply. HMRC says the government will analyse consultation responses and publish a summary following the consultation. It may also conduct further consultation on specific reforms before legislation is introduced. The distinction between current law and proposed reform is therefore critical. AreaCurrent PositionWhat the Consultation ConsidersOrdinary dividendsExisting Income Tax rules continueNo general replacement of dividend taxation is proposedCapital reductionsExisting distribution and CGT rules continueRevisiting how new consideration and capital repayments are calculated in certain restructuringsShare buybacksExisting Purchase of Own Shares rules continueReplacing some subjective conditions with more mechanical testsLoans to participatorsExisting Section 455 rules continuePossible priority rules where distributions and shareholder loans overlapOverseas taxation of company distributionsExisting foreign distribution rules continueCloser alignment with UK company distribution rulesOverseas shareholder loansNo equivalent general Section 455 charge on every overseas company loanPossible new rules for certain closely controlled non-UK companiesTransactions in SecuritiesExisting ITA 2007 provisions continueAmending or replacing the current regime These remain consultation proposals unless and until legislation is enacted. If you want to know how much tax you could pay on your dividends? Use our free UK Dividend Tax Calculator to get an estimate based on your current circumstances. Why Is HMRC Reviewing Repayments of Capital? HMRC is reviewing repayments because certain restructurings can alter the amount regarded as share capital for distributions purposes without an equivalent new economic investment by the shareholder. Under CTA 2010 section 1000(1)(B), a distribution out of a company’s assets in respect of its shares is generally within the distributions code, except to the extent that statutory exclusions apply, including a repayment of share capital or an amount representing new consideration received by the company. HMRC’s Company Taxation Manual confirms this treatment. The consultation looks particularly at some share-for-share exchanges and holding-company restructurings. Under certain existing arrangements, the value attributed to shares following a restructuring can produce a larger amount treated as capital for distribution purposes even where the shareholder has not contributed equivalent new funds. The consultation considers whether the rules for new consideration and repayments of capital should be revised in these circumstances. What Could That Mean for Company Owners? If rules of this kind were enacted, some later payments that might currently fall partly within capital treatment could instead be treated more extensively as distributions. This could change the capital distribution tax UK, particularly where a new holding company has been inserted above an existing business before capital is returned to shareholders. However, this is not current law. The final approach may differ from the options discussed in the consultation. Get Free Consultation Call Anytime 0203 883 4777 Get Free Consultation How Could Purchase of Own Shares Tax Rules Change? The consultation considers substantial changes to the conditions under which a company’s purchase of its own shares can receive capital rather than distribution treatment. The existing rules remain in force for now. Under current Purchase of Own Shares rules, qualifying purchases by an unquoted trading company can receive capital treatment where statutory conditions are satisfied. Current conditions include, among other matters: the company generally being an unquoted trading company the purchase being wholly or mainly for the benefit of the company’s trade the seller being a UK resident the seller generally having held the shares for at least five years a substantial reduction in the seller’s interest The seller must generally not be connected with the company immediately after the purchase, subject to the detailed statutory rules and exceptions. anti-avoidance conditions concerning continued participation in company profits. The five-year ownership period can be reduced in certain inherited-share cases. What New Share Buyback Conditions Is HMRC Considering? HMRC is considering the following conditions. These proposals do not currently replace the existing Purchase of Own Shares rules. Options discussed in the consultation include: requiring the seller to have at least a 5% equity interest requiring ownership and employment with the company for at least two years requiring the shareholder to surrender their entire shareholding and directorship allowing certain staged exits where the shareholder fully leaves within two years preventing consideration from exceeding market value potentially applying a five-year ownership and working requirement where family connections with remaining shareholders continue potentially withdrawing relief where a former shareholder returns as a shareholder or director within five years, subject to proposed exceptions. These proposals could materially change the purchase of own shares tax planning if enacted, but they should not be applied as today’s eligibility test. Get Free Consultation Call Anytime 0203 883 4777 Get Free Consultation How Could the Consultation Affect Directors’ Loans and Loans to Participators? The consultation explores possible rules for transactions where the distributions regime and participator loan rules can overlap. Under current legislation, Section 455 CTA 2010 can impose a tax charge on a close company where it makes a loan or advance to a participator or certain associates and statutory conditions are satisfied. For relevant loans and advances from 6 April 2026, the rate is 35.75%. The rate is linked to the dividend upper rate, which increased to 35.75% for 2026/27. Importantly, Section 455 is generally a company-level tax charge, not simply an income tax charge imposed directly on the director receiving the loan. The consultation explores possible mechanisms for resolving situations where a transaction could fall within both the distributions rules and Section 455. Options include: determining which tax regime should take priority addressing payments originally intended as distributions that later become repayable potentially placing aspects of HMRC’s treatment of inadvertent or defective distributions onto a statutory footing. No new priority rule is currently in force. Could Loans From Overseas Companies Face New UK Tax Rules? Yes. The consultation separately considers whether new rules should apply to loans or other temporary extractions received from certain non-UK resident companies. This is distinct from the existing Section 455 regime. HMRC is considering circumstances involving a non-UK company that would broadly resemble a close company if it were a UK resident. Because the overseas company may itself fall outside the UK Corporation Tax charge, the consultation examines alternative ways of imposing an appropriate UK tax charge. Some options could place liability on the UK-resident individual receiving the value, rather than replicating the existing UK close-company mechanism exactly. This could be particularly relevant to UK-resident owners of overseas family businesses and closely controlled international companies. Again, these are options being considered, not existing rules. Could Distributions From Non-UK Companies Be Treated Differently? Yes. The consultation explores whether the income tax treatment of distributions from non-UK resident companies should be brought closer to the treatment applying to UK resident companies. Current international structures can raise difficulties because overseas corporate law does not always use concepts equivalent to UK share capital, dividends or capital repayments. HMRC, therefore, asks how the UK should identify distributions and capital amounts where adequate information about a foreign company’s share capital or equivalent accounts is unavailable. Any eventual reform could affect UK-resident individuals and trustees holding shares in overseas owner-managed companies or family businesses. It does not mean that all overseas capital payments will automatically become dividends. Get Free Consultation Call Anytime 0203 883 4777 Get Free Consultation What Could Change for Corporate Demergers? HMRC is considering whether the statutory demerger regime should be modernised alongside other changes to the distributions framework. Existing statutory demerger provisions can allow qualifying transactions to proceed without what would otherwise be an Income Tax distribution charge, provided the detailed statutory conditions are satisfied. The consultation recognises that tightening other routes to capital treatment could interfere with genuine commercial separations if the statutory demerger regime remains too restrictive. HMRC therefore considers potential changes to conditions governing matters such as: subsequent disposals changes in control cessation of activities winding-up after a demerger. These are consultation options and should not be treated as current statutory tests. Businesses considering a demerger should continue applying the existing legislation and clearance procedures until any new rules are enacted. What Could Happen to the Transactions in Securities Rules? The government is considering whether to amend or replace the existing rules with an updated anti-avoidance regime. However, the design of any replacement remains under consideration and no new regime is currently in force. The existing provisions are contained in Part 13, Chapter 1 of ITA 2007 for individuals. Broadly, the rules can apply where transactions involving securities produce an Income Tax advantage and the statutory conditions are met. They are particularly relevant where arrangements potentially convert what would otherwise be taxable income into capital. An advance statutory clearance mechanism currently exists. HMRC must generally notify an applicant of its clearance decision within 30 days of receiving the necessary particulars or any further information it requests. The consultation indicates that the government wants an updated regime that deals more clearly with modern transactions while preserving protection against income-to-capital conversion arrangements. Why Does the Income Versus Capital Distinction Matter in 2026/27? The distinction matters because dividend income tax and CGT apply under different rules, rates and relief regimes. For the tax year 6 April 2026 to 5 April 2027: Tax Treatment2026/27 PositionDividend ordinary rate10.75%Dividend upper rate35.75%Dividend additional rate39.35%Dividend allowance£500Main CGT rates for individuals18% / 24%Business Asset Disposal Relief rate18%Individual CGT Annual Exempt Amount£3,000Main CGT rate for most trustees24%Annual Exempt Amount for most trustees£1,500 HMRC confirms the 2026/27 dividend rates and the £500 dividend allowance. For disposals from 6 April 2026, HMRC confirms that the main CGT rates for individuals are 18% and 24%, while gains qualifying for Business Asset Disposal Relief or Investors’ Relief are charged at a separate 18% rate. This distinction is important. BADR is not simply the standard 18% CGT rate and does not apply automatically to every share sale, company buyback or capital distribution. The legal character of a transaction must be established before comparing possible tax rates. For a broader explanation of current extraction methods, see Apex Accountants’ guide to taking money out of your limited company. What Should Company Directors Do While the Consultation Is Unresolved? Company directors should continue applying existing legislation but consider the consultation when planning transactions whose tax treatment depends heavily on whether an extraction is income or capital. Particular care may be appropriate before: introducing a holding company reducing or repaying share capital completing a significant company share buyback restructuring a family-owned company carrying out a statutory or non-statutory demerger settling a substantial director’s loan account extracting accumulated company value entering arrangements potentially within transaction rules. This does not mean these transactions should be postponed automatically. The practical approach is to determine the capital distribution tax UK under current law, document the commercial purpose and then consider whether announced or proposed reforms create an additional timing or structuring risk. Get Free Consultation Call Anytime 0203 883 4777 Get Free Consultation FAQs Has HMRC changed the rules for withdrawing money out of the company? No. HMRC’s 2026 consultation has not itself changed the law. The consultation closed on 14 September 2026, and the government is considering responses before deciding which proposals should proceed. Are capital repayments being abolished? No. The consultation does not propose a general abolition of capital repayments. It examines, among other issues, whether the rules determining new consideration and repayments should change in certain restructuring situations. Will every company share buyback become taxable as a dividend? No. Existing purchase of own shares legislation continues to determine whether qualifying buybacks receive capital treatment. HMRC is considering different eligibility conditions, but those proposed tests have not yet replaced the current rules. Does section 455 apply to every director’s loan? No. Section 455 applies in specified circumstances where a close company makes a loan or advance to a participator or certain associates. Whether a charge arises depends on the company’s status, the recipient, the nature and timing of the loan and other statutory conditions. For relevant loans from 6 April 2026, the Section 455 rate is 35.75%. Can HMRC treat a capital transaction as income? Potentially. Existing legislation can treat some company payments as distributions, while the Transactions in Securities provisions can counteract arrangements meeting the statutory conditions for an income tax advantage. The correct treatment therefore depends on the legal form and substance of the transaction rather than simply how the payment is described. Should I delay a company restructuring until the new rules are known? Not automatically. Existing law remains applicable, and genuine commercial transactions can continue. However, where a proposed restructuring depends heavily on capital treatment, directors should assess both the current statutory position and the possibility that future legislation could affect transactions implemented later. How Can Apex Accountants Help With Company Distributions? Before making a substantial shareholder extraction, completing a share buyback or restructuring a company, the next step is to establish how the transaction is taxed under current law, rather than planning on the assumption that consultation proposals are already effective. Apex Accountants can review dividend planning, director’s loan accounts, capital transactions, company restructuring and shareholder extraction strategies. Our tax planning services can help assess the personal and company tax consequences before a transaction is implemented. Where Corporation Tax issues are also involved, our corporation tax services provide further support with company tax compliance and planning.
Do Hairdressers Charge VAT in the UK? Posted on 18 September 20261 October 2026 by Farazia Gillani The question, “Do hairdressers charge VAT in the UK?” is one that many salon owners, freelance stylists, and mobile hairdressers often ask. The answer depends not on the type of business but on turnover. Like all other UK businesses, hairdressers must follow HMRC’s VAT (Value Added Tax) rules, which are closely tied to income thresholds. Once a business grows beyond a set level, VAT registration becomes compulsory, and this has direct consequences for pricing, profit margins, and customer perception. This article provides a detailed explanation of VAT requirements for hairdressers. It covers the registration threshold, rules for different business models, exemptions, the standard VAT rate, and the practical effects on the hairdressing industry. It also highlights how Apex Accountants can help hairdressers manage VAT effectively. What is the VAT registration threshold for hairdressers? The VAT registration threshold is the first factor to consider. For 2026/27, the VAT registration threshold remains £90,000 in taxable turnover. This means that if a hairdresser, salon, or barber shop has taxable turnover of more than £90,000 in any rolling 12-month period, they must register for VAT with HMRC. It is important to note that this is a rolling 12-month period, not a tax-year test. Businesses should review their taxable turnover regularly. Compulsory VAT registration applies once taxable turnover for the previous 12 months goes over £90,000. A business must normally register within 30 days of the end of the month in which it exceeded the threshold. On the other hand, if turnover later drops below £88,000, a hairdresser may apply for deregistration. This flexibility helps businesses that experience seasonal fluctuations or temporary drops in revenue. However, many businesses in the sector deliberately remain under the threshold to avoid the administrative burden and financial implications of VAT. How the £90,000 rolling VAT threshold works A salon taking £7,500 per month would have a taxable turnover of exactly £90,000 after 12 months. That alone does not exceed the VAT registration threshold. However, if its rolling 12-month taxable turnover rises above £90,000, it must register for VAT. For example, if turnover reaches £90,500, the business must normally register within 30 days of the end of the month in which it exceeded the threshold. Do all hairdressers have to charge VAT once registered? The obligation to charge VAT does not depend on the type of business. Whether someone is a self-employed stylist, a salon owner, or a mobile hairdresser, the same rule applies: once the threshold is exceeded, VAT registration is compulsory and VAT must be charged. Independent and self-employed hairdressers must register when their taxable turnover from services and product sales goes above £90,000 in a rolling 12-month period. Below the threshold, VAT registration is not compulsory, although voluntary registration is available. Salon businesses must take a wider view of turnover. Income from services, retail sales, and even chair rental fees from freelancers all count toward the threshold. Once this total passes £90,000, VAT registration is unavoidable. Chair rental arrangements can tip many salons into VAT. HMRC clarified that chair rentals are taxable at the standard rate, meaning this income cannot be excluded. Mobile hairdressers, who often earn below the threshold, usually do not charge VAT. However, if their earnings grow – perhaps by catering to events, building a larger client base, or hiring additional help – VAT may come into play. Employees working in salons never charge VAT personally. Instead, the salon or company they work for is responsible for VAT registration and collection. Get Free Consultation Call Anytime 0203 883 4777 Get Free Consultation Are there any VAT exemptions for hairdressers? There are no sector-specific VAT exemptions for hairdressers. In other words, there is no special rule that removes hairdressers from the VAT system. All standard services, such as cutting, colouring, and styling, are taxable at the standard rate. Businesses whose taxable turnover remains below the £90,000 registration threshold are not normally required to register for VAT. This is a registration threshold rather than a VAT exemption. Hairdressers who are not VAT-registered do not charge VAT on their taxable services and cannot reclaim input VAT on business costs. Some choose to register voluntarily to reclaim VAT on eligible expenses. Once registered, they must account for VAT on their taxable services and sales. What VAT rate applies to hairdressing services? Hairdressing services are subject to the standard VAT rate of 20%. Unlike some sectors, such as hospitality, which temporarily benefited from a reduced VAT rate during COVID-19, hairdressers have always remained at the standard rate. For example, a £50 haircut advertised before VAT becomes £60 once VAT is added. Many salons therefore prefer to display VAT-inclusive prices to avoid confusing clients. While customers of VAT-registered businesses pay more, customers of smaller, unregistered salons or mobile hairdressers do not pay VAT on top of quoted prices. Some salons use HMRC’s Flat Rate Scheme. Under the scheme, a hairdressing business still charges the normal VAT rate to customers but calculates the amount it pays to HMRC using a flat-rate percentage. The Flat Rate Scheme percentage for hairdressing and other beauty treatment services is 13%, although businesses classed as limited-cost businesses may have to use the higher 16.5% rate. The scheme can simplify VAT accounting, though it may not suit every business. How does VAT affect pricing and profits for hairdressers? VAT for hairdressers has a significant impact on pricing. Once registered, a hairdresser has two main choices: Increase prices by around 20% so the VAT is passed directly to customers. This can make services appear less competitive compared to non-registered stylists. Absorb the VAT cost and keep prices the same, but sacrifice part of the profit margin. This is often unsustainable in the long term. Because hairdressing is labour-intensive, salons may have fewer VAT-bearing costs to reclaim than some other businesses. Wages do not carry VAT, while chair rental supplied by a VAT-registered salon is generally taxable. The amount of input VAT a salon can reclaim will therefore depend on its particular costs and business arrangements. This pressure has led to calls within the industry for a reduced VAT rate, but hairdressing services continue to be subject to the standard VAT rate in 2026/27. Conclusion: Do hairdressers charge VAT in the UK? Hairdressers only charge VAT if they are VAT-registered. Registration is compulsory once turnover exceeds £90,000 in any rolling 12 months. VAT applies equally to salons, self-employed stylists, and mobile hairdressers. All services are taxed at the standard 20% rate. No specific VAT exemptions exist for the sector. Smaller operators below the threshold do not charge VAT, which is why many remain outside the VAT system. Larger salons and growing freelancers, however, must register and adjust their pricing strategies accordingly. How Apex Accountants can help hairdressers with VAT For many in the hair and beauty industry, VAT is one of the most difficult financial challenges. At Apex Accountants, we work closely with salon owners, freelance stylists, and mobile hairdressers to make VAT management simpler and less stressful. Our VAT services for hairdressers include: Monitoring turnover and advising when VAT registration is required. Registering businesses for VAT and handling deregistration when appropriate. Preparing and filing VAT returns with HMRC. Advising on pricing strategies that maintain competitiveness while staying compliant. Exploring schemes such as the Flat Rate Scheme to simplify VAT reporting. Representing clients in communications with HMRC and ensuring all obligations are met. By partnering with Apex Accountants, hairdressers can focus on delivering great service to clients while we take care of VAT, compliance, and financial strategy. Book a free consultation with Apex Accountants today and let us help your hairdressing business grow with confidence. FAQs on VAT for Hairdressers and Beauty Salons in the UK 1. What is the VAT rate for hairdressers in the UK? Hairdressing services in the UK are taxed at the standard VAT rate of 20%. This applies to all haircuts, styling, colouring, and similar services once a business is VAT-registered. 2. Is there VAT on beauty products in the UK? Yes. Most beauty products, such as shampoos, conditioners, hair dyes, and cosmetics, are subject to the standard VAT rate of 20%. Only a few items, like certain health-related products, may fall under reduced or zero rates. 3. Do self-employed hairdressers have to pay VAT? Self-employed hairdressers only need to register for VAT if their taxable turnover exceeds £90,000 in any rolling 12-month period. Below this threshold, they are not required to charge VAT, although voluntary registration is allowed. 4. Do you charge VAT on chair rental in a salon? Chair rental is generally a taxable supply. If a VAT-registered salon rents chair space to a self-employed stylist, the salon normally charges VAT on that rental income. Chair-rental income also contributes to the salon’s taxable turnover when determining whether it needs to register for VAT. 5. Do self-employed hairdressers pay tax to HMRC? Yes. Self-employed hairdressers must submit a self-assessment tax return each year and pay income tax and national insurance on their profits. VAT is separate and only applies if they cross the registration threshold. 6. Are beauty salons required to be VAT registered? A beauty salon must register for VAT once its taxable turnover exceeds £90,000 in a rolling 12-month period. If it remains below the threshold, registration is not required. Some salons choose to register voluntarily to reclaim VAT on expenses. 7. What is the VAT threshold in the UK? For 2026/27, the VAT registration threshold remains £90,000. Businesses whose taxable turnover goes over this amount in a rolling 12-month period must register with HMRC. The VAT deregistration threshold remains £88,000. 8. Do hairdressers have to pay VAT on their services? Yes, once registered. Hairdressers who cross the VAT threshold must add 20% VAT to all their services. Those below the threshold do not charge VAT to customers. 9. Are beauty treatments subject to VAT in the UK? Yes. All standard beauty treatments, such as facials, manicures, and waxing, are taxed at the 20% VAT rate when the salon or beautician is VAT-registered. 10. Does hairdressing attract GST instead of VAT? No. The UK does not use GST (Goods and Services Tax). Hairdressing services in the UK are covered under VAT, with the standard rate of 20% applying to all taxable services. 11. Is VAT always 20% for everything in the UK? No. While many goods and services, including hairdressing and beauty, are taxed at 20%, some items fall under reduced rates (5%) or are zero-rated. For hairdressers, however, services and most products are charged at the standard 20% rate.
How the UK Exit Tax Proposal Could Introduce a 20% Charge for Individuals and Businesses Posted on 17 September 202625 September 2026 by Rida Ahmed The proposed UK exit tax is a one-off charge, reported at around 20%, on unrealised gains in UK business and investment assets when an individual ceases to be UK tax resident. It remained a proposal only as of September 2026 — not yet law — and some reports suggest it may have been scaled back or not taken forward, though it has not been definitively ruled out in all forms. Anyone considering leaving the UK should therefore monitor Budget statements and official guidance before acting. Chancellor Rachel Reeves has reportedly been considering a 20% “exit tax” that would apply to high-net-worth individuals (HNWIs) leaving the UK. This UK exit tax proposal would target unrealised gains on business and investment assets acquired while an individual was a UK resident. The exit tax is being discussed as part of the 2025 Budget to help cover the UK’s growing fiscal deficit. This exit tax would impose a capital gains tax (CGT) on unrealised gains for individuals who have been UK residents and then decide to emigrate or relocate their tax residence. Such a move aims to prevent the avoidance of UK tax when wealthy individuals move their assets abroad without paying tax on the value appreciation that occurred during their time as UK residents. What is an Exit Tax? An exit tax is a tax that countries impose on individuals or businesses when they leave the country and cease to be tax residents. Specifically, it taxes the unrealised gains (the increase in the value of assets, such as shares, businesses, or real estate) that have occurred during the time the individual was a resident. Exit taxes are designed to stop people from leaving a country and selling assets in a way that avoids leaving UK capital gains tax liabilities on gains that built up while they were UK residents. Get Free Consultation Call Anytime 0203 883 4777 Get Free Consultation Why Might the UK Exit Tax Proposal Introduce? The UK is facing an economic challenge, and the government needs new ways to generate revenue. Here are some reasons why the 20% exit tax UK is being considered: 1. Raise Revenue Supporters believe the exit tax could raise around £2 billion for the Treasury by taxing unrealised gains when individuals leave the country. This would help protect the UK’s tax base and prevent individuals from avoiding capital gains tax by emigrating. Wealthy individuals can avoid UK CGT by simply moving abroad and holding onto appreciating assets without selling them. 2. Align with International Norms Other countries, such as France, Canada, and the United States, already impose exit taxes on individuals when they leave. Advocates for the UK exit tax suggest that the UK should adopt a similar approach to maintain consistency with global standards and prevent wealthy individuals from leaving without paying their fair share of tax. 3. Prevent Tax Avoidance The exit tax is considered a tool to curb tax avoidance by wealthy individuals who may otherwise leave the country and avoid paying tax on large capital gains. By taxing unrealised gains, the UK government can ensure that these individuals pay tax on their assets while they are residents. Why is the 20% Exit Tax UK Controversial? While the proposal aims to raise revenue, critics argue that it could have significant negative consequences. Here are some key concerns: 1. Possible Exodus of Wealth Business leaders, investors, and tax advisers have warned that even the discussion of an exit tax could encourage wealthy individuals to leave the UK earlier than planned. The concern is that if the tax is introduced, many individuals might accelerate their exit plans to avoid being taxed. This could lead to a reduction in investments in the UK. 2. Practical Challenges in Valuing Assets One of the major challenges of implementing an exit tax is how to fairly value assets, especially privately held businesses or illiquid investments. Determining the market value of these assets when an individual exits the UK can be complex and subjective. There are concerns that such an approach could create administrative burdens and disputes. 3. Impact on the UK’s Competitiveness Imposing an additional tax burden on high-net-worth individuals may discourage entrepreneurs from investing in the UK or starting businesses here. The UK already has high corporate tax rates and the highest personal tax burden in decades. An exit tax could send the signal that the UK is no longer a hospitable place for wealth creators. What the proposal would mean in practice If the reported 20% exit charge were introduced, it would work as a deemed disposal when an individual ceases to be UK tax resident: unrealised gains on relevant business and investment assets would be treated as if sold at market value, triggering a Capital Gains Tax–style charge. Early reporting suggested the rate would be around 20% on those gains, with the possibility of deferring payment (for example, via instalments or until the assets are actually sold), rather than requiring the full amount immediately. Worked example: A UK‑resident business owner holds shares in their trading company with a base cost of £100,000 and a current market value of £500,000, giving £400,000 of unrealised gains. On ceasing UK residence under the proposal, those gains could be taxed at about 20%, implying a potential exit charge of around £80,000. Depending on the final rules, the owner might be able to defer payment – for instance, spreading it over several annual instalments or paying only when the shares are eventually disposed of – subject to interest and anti‑avoidance conditions. What Will Be Taxed? The exit tax would primarily target assets held by high-net-worth individuals that have appreciated in value during their time as UK residents. These could include: Business assets (such as shares in private companies) Real estate (if applicable) Investment assets (stocks, bonds, etc.) The tax would likely apply when the individual departs the UK, making leaving UK capital gains tax planning particularly important. Their assets could be deemed to have been sold, with tax charged on capital gains accrued during their UK residency. How Can Apex Accountants Help? At Apex Accountants, we specialise in helping individuals and businesses navigate complex tax changes and plans. Our services include: Tax Planning – We assess your current tax position, reviewing your assets and potential exposure to an exit tax. Residency & Structuring Advice – We guide you on residency status, structuring your assets in a tax-efficient manner. Cross-Border Tax Advice – We offer advice on managing your global tax liabilities when relocating or moving assets across jurisdictions. Budget Monitoring – We stay on top of legislative changes, advising on the best timing for asset disposals or relocation to minimise tax exposure. Get Free Consultation Call Anytime 0203 883 4777 Get Free Consultation Conclusion The proposed 20% exit tax is still under consideration, but it marks a significant change in how the UK may treat wealthy individuals who decide to leave the country. The tax aims to address tax avoidance and boost revenue, but it may also lead to unintended consequences such as driving capital away from the UK and discouraging investment. As the UK’s tax system evolves, it is crucial for high-net-worth individuals and businesses to seek professional tax planning and inheritance tax planning services and advice to plan ahead. FAQs About UK Exit Tax Proposal 1. When Would the Exit Tax Take Effect? The exit tax is now understood to be a reported proposal only, initially discussed around the November 2025 Budget but not enacted, with later reporting suggesting it may have been scaled back or not taken forward for individuals. If introduced in future, any start date would depend on the legislative process and government decisions, typically aligning with a specified date in the Budget or the start of a tax year. 2. What Assets Are Exempt From UK Exit Tax? Typically, primary homes and pensions are exempt from UK exit taxes in many countries. While the UK may follow this pattern, the specifics remain uncertain until the final rules are released. 3. How Can I Prepare for the Exit Tax? To prepare, review assets with unrealised gains, consider restructuring through trusts or offshore entities, and seek advice on residency status and cross-border tax liabilities to mitigate exposure. 4. Which Countries Have an Exit Tax? Countries such as France, Canada, the US, and Australia have exit tax regimes that tax unrealised gains when individuals leave, preventing capital gains avoidance by emigrants. 5. How Is an Exit Tax Calculated? The exit tax would likely calculate gains on the market value of assets at departure, taxing those gains accrued during UK residency. Deferrals may apply under certain conditions. 6. Are There Any Deferrals or Exemptions? Some countries allow deferrals or exemptions for certain assets like primary homes or pensions. While the UK may follow a similar approach, this is not confirmed yet.
UK VAT On Prize Draws Faces Scrutiny As HMRC Clarifies Tax Position Posted on 16 September 202629 September 2026 by Farazia Gillani Paid entries to UK online prize draws are subject to VAT at the standard 20% rate when the entry fee buys a place in a draw rather than a free competition route. HMRC’s clarified position means operators must account for output tax on paid entries, while genuine free-entry competitions stay outside VAT. The UK government has confirmed that paid entries to online VAT on prize draws offering both a free and paid route will be subject to value added tax (VAT) at the standard rate, challenging the widespread assumption that such draws fall within the betting and gaming exemption. Responding to a House of Commons question tabled on 9 February, Treasury minister Dan Tomlinson stated on 17 February that HM Revenue & Customs (HMRC) “confirm that prize draws offering both paid and free entry routes are not eligible for VAT exemption and paid entries will be subject to VAT at the standard rate of 20%”. The clarification comes as the Department for Culture, Media & Sport (DCMS) prepares to implement a voluntary code of practice for prize draw operators and as the sector attracts increased regulatory and fiscal scrutiny. Why VAT on online prize draws matters Prize draws have become a lucrative segment of the UK online promotions market, and VAT on online prize draws is increasingly under scrutiny. Independent research commissioned by DCMS estimated that around 7.4 million adults took part in prize draws and competitions (known collectively as PDCs) in the 12 months to November 2023, spending around £1.3 billion—with a market size range of £700 million to £2.1 billion. The sector is dominated by around 400 operators and is growing rapidly, prompting concerns about consumer protection, gambling harm and tax compliance. The Treasury’s recent statement, coupled with the forthcoming voluntary code, means operators must reassess whether their ticket sales attract VAT and consider potential historic exposures. HMRC’s Clarified Position in Brief HMRC confirmation: The government has confirmed that prize draws with both paid and free entry routes are not covered by the VAT exemption for betting, gaming, and lotteries; VAT for online prize draw operators will apply at 20% for paid entries. Policy trigger: The clarification followed a parliamentary question about the tax treatment of such draws, asked amid the roll‑out of the voluntary code of practice. Growing market: Research shows 7.4 million participants and annual spending around £1.3 billion, with at least 401 operators, each of whom must understand VAT for online prize draw operators to avoid penalties. Exemption complexities: VAT legislation exempts facilities for betting or playing games of chance, but the supply of games of skill is standard‑rated. The classification of prize draws sits in this grey area. Voluntary code: Operators signing the code must implement its player‑protection measures within six months and no later than 20 May 2026. Uncertain tax treatment: Larger businesses taking a tax position inconsistent with HMRC’s “known position” must notify HMRC under the uncertain tax treatment regime. Get Free Consultation Call Anytime 0203 883 4777 Get Free Consultation What Has Happened with VAT on Prize Draws A written question from Maureen Burke, Labour MP for Glasgow North East, asked the Chancellor to clarify the VAT treatment of ticket sales for online prize draws that offer both a paid and a free entry route. In the response on 17 February 2026, Treasury minister Dan Tomlinson confirmed that HMRC regards paid entries as standard‑rated supplies, meaning VAT must be charged at 20 %. The minister’s statement effectively rejects the view that such draws are exempt under Group 4 of Schedule 9 to the Value Added Tax Act 1994, which exempts facilities for betting, gaming and lotteries. The parliamentary question reflects growing uncertainty in the sector. Many operators have treated their prize draws as VAT‑exempt on the basis that they provide a game of chance similar to a lottery. HMRC’s position draws a distinction between games of chance, which are exempt, and games of skill or commercial competitions, which are standard‑rated. The government’s clarification suggests that a dual‑entry prize draw—where free postal entries coexist with paid online tickets—does not fit neatly within the gambling exemption. Why Prize Draws Attracted HMRC Scrutiny Under existing HMRC guidance, supplying facilities for betting or playing games of chance is normally exempt from VAT. A game of chance involves an outcome determined wholly or partly by chance, whereas games of skill, such as certain competitions, are subject to VAT. HMRC’s VAT notice cites “spot the ball” competitions as examples; these were deemed games of chance and thus exempt after a Court of Appeal ruling in 2016. The line between skill and chance, however, is nuanced. In prize draws offering both free and paid entry, HMRC appears to consider the paid ticket sale as a taxable supply rather than a stake in a game of chance. The value of the exemption may be substantial. Participation in games of equal chance became VAT‑exempt from 29 April 2009, and the exemption covers stakes or takings less any winnings. Operators who have not accounted for VAT on ticket sales may face assessments, penalties and interest. Moreover, under the uncertain tax treatment (UTT) regime, large businesses must notify HMRC when they take a tax position that is uncertain and exceeds a £5 million tax advantage. Treating prize draw entries as exempt despite HMRC’s stated position would therefore trigger a disclosure obligation. Key details or changes The voluntary code of good practice for prize draw operators, published by DCMS and updated in February 2026, contains detailed measures on player protection, transparency and accountability. Signatories must fully implement the code within six months of publication and no later than 20 May 2026, sharing best practices and supporting non‑signatories. The code prohibits operators from accepting credit card payments above £250 per month per player, requires age verification and clear complaints processes, and encourages spend limits and self‑exclusion options. While the code does not address VAT directly, it signals heightened regulatory interest in the sector. The research commissioned by DCMS highlights the scale of the market and its proximity to gambling. An estimated 88 % of prize draw participants also engage in commercial gambling activities, compared with 60 % of adults in the general population. This connection has raised concerns that prize draws may serve as a gateway to gambling, prompting calls for tighter oversight and clearer taxation rules. Who is affected? Online prize draw operators offering paid and free entry routes are directly affected. Those who have treated entry fees as exempt may face liabilities for under‑declared VAT and should review historic transactions. Businesses using prize draws for promotions, such as retailers and charities, need to consider whether entry fees constitute taxable supplies. Promotional competitions based solely on skill may remain subject to VAT; free-entry draws with no paid option are outside the scope. Large corporations are subject to the uncertain tax treatment rules. If their interpretation diverges from HMRC’s position, they must disclose the uncertainty. Players and consumers are unlikely to see direct tax impacts, but operators may adjust ticket prices or limit paid entries to account for VAT. Expert Analysis From a tax and accounting perspective, HMRC’s confirmation narrows the scope of the betting and gaming exemption. The key determinant is whether the consideration paid by participants is a stake in a game of chance (exempt) or payment for a right to enter a competition or prize promotion (taxable). Operators offering both free and paid entry routes effectively sell a participation right. HMRC’s position aligns with the principle that a competition with a free route is not a “bet” and therefore falls outside the Group 4 exemption. Businesses that have relied on the exemption should assess their exposure. This includes analysing whether entry fees were treated as exempt and whether input VAT recovery on related expenses (such as prizes or marketing) was restricted. Where VAT was not charged, operators may need to correct past VAT returns and negotiate time‑to‑pay arrangements with HMRC. The UTT regime adds a further layer: taking a position contrary to HMRC’s known stance—such as claiming exemption after February 2026—must be disclosed if the potential tax difference exceeds £5 million. Why this matters for UK businesses For operators, the immediate impact of VAT treatment for promotional competitions is financial. Charging 20 % VAT on ticket sales could significantly reduce margins and may require price adjustments or reductions in charitable donations. Businesses that fail to account for VAT risk assessments, penalties and reputational damage. Those using prize draws as marketing tools must also be aware that VAT applies where participants pay to enter; free draws with no purchase requirement remain outside the scope. Compliance obligations extend beyond VAT; operators must implement the voluntary code’s player‑protection measures by May 2026. The clarification also underscores the need for robust tax governance. Uncertain tax positions should be documented, and businesses should engage early with HMRC to seek confirmation or apply for rulings. Transparent communication reduces the likelihood of costly disputes. In the longer term, litigation may test whether the dual-entry draw model genuinely falls outside the betting exemption, echoing the successful “spot the ball” challenge. Until courts provide further guidance, conservative treatment and disclosure will be prudent. Get Free Consultation Call Anytime 0203 883 4777 Get Free Consultation VAT Treatment for Promotional Competitions: What Businesses Should Do Review current and historic prize draw models to determine whether entry fees have been correctly treated for VAT purposes and identify any under‑declared VAT. Distinguish between games of chance and games of skill. Where an element of skill predominates, treat the supply as taxable; where it is pure chance with a stake, exemption may apply. Implement the DCMS voluntary code by 20 May 2026, including spend limits, age verification and restrictions on credit card payments. Assess uncertain tax treatments and notify HMRC if the tax advantage exceeds the £5 million threshold, particularly if adopting a position contrary to HMRC’s statement. Seek professional advice before launching prize promotions to ensure VAT compliance and mitigate potential liabilities. How Apex Accountants Can Support Your Business with VAT on Prize Draws and Competitions At Apex Accountants & Tax Advisors, we offer expert guidance on VAT and indirect taxes related to prize draws and promotional competitions. Our services include: VAT Reviews: Assessing your prize draw and competition models to ensure they align with the latest VAT regulations. Exemption Analysis: Determining whether VAT exemptions apply and evaluating any potential historic VAT exposure. VAT Registration & Return Adjustments: Supporting VAT registration, filing adjustments, and handling negotiations with HMRC. Voluntary Code Compliance: Assisting with the implementation of the voluntary code, including age verification and spend limits compliance. Uncertain Tax Treatment Notifications: Offering expert advice on uncertain tax treatment and helping you prepare necessary documentation. Contact us now to ensure your business remains VAT-compliant with the latest regulations. Conclusion The UK government’s confirmation that paid entries to prize draws are subject to standard‑rated VAT signals a shift in the treatment of a rapidly growing sector. With millions of participants and significant sums at stake, prize draw operators must reassess their tax positions and prepare for increased compliance obligations. The forthcoming voluntary code aims to improve consumer protections, and the uncertain tax treatment regime encourages transparency. Businesses that take proactive steps to review their prize promotions, implement the code and engage with HMRC will be better positioned to manage risks and avoid costly disputes. FAQs About VAT on Prize Draws in 2026 Are online prize draws subject to VAT? Yes. HMRC has confirmed that prize draws offering both paid and free entry routes are not eligible for the betting and gaming exemption; paid entries must be charged VAT at 20%. What about free‑entry routes? Where entry is genuinely free and no payment is required, there is no taxable supply and VAT does not arise. The tax liability applies to the paid entry, not the free option. Why are games of chance usually VAT‑exempt? Group 4 of Schedule 9 to the Value Added Tax Act 1994 exempts the provision of facilities for betting or playing games of chance. A game of chance is defined as one where chance or chance and skill combined determine the outcome. However, competitions based principally on skill are standard‑rated. When does the voluntary code come into force? Signatories must fully implement the code within six months of its publication and no later than 20 May 2026. The code is not legally binding but demonstrates good practice and may influence regulatory expectations. What is the uncertain tax treatment regime? Since 1 April 2022, large businesses with turnover above £200 million or assets exceeding £2 billion must notify HMRC when they adopt a tax position that is uncertain and exceeds a £5 million tax advantage. Adopting a position contrary to HMRC’s confirmed view on prize draws could trigger this notification. Do prizes attract VAT? For exempt betting and gaming supplies, the stake money is outside the scope of VAT and prizes are not taxable; only the net takings are exempt. Where a prize draw is taxable, any input VAT on goods given as prizes may be recoverable, subject to normal rules. Could future litigation change HMRC’s position? Possibly. The 2016 “spot the ball” case demonstrated that courts may classify certain competitions as games of chance. If a court were to decide that dual‑entry prize draws are bets or lotteries, they could become exempt. Until then, HMRC’s stated position applies, and businesses should account for VAT accordingly. Are online prize draws subject to VAT in the UK? Yes, when entry is paid. A paid entry fee to an online prize draw is consideration for a place in the draw and attracts VAT at the standard 20% rate. Free-entry prize competitions sit outside VAT altogether. Why are games of chance usually VAT-exempt? Betting, gaming and lotteries as such are VAT-exempt because the law treats the stake as participation in the gambling rather than payment for a supply. The exemption falls away when a promoter charges for entries to a draw that is not a regulated lottery.
TikTok Tax Guide for UK Creators in 2026 Posted on 16 September 202629 September 2026 by Rida Ahmed TikTok is one of the fastest‑growing platforms for creators and small businesses. With more than a billion users worldwide, it’s now a serious income stream. A recent study found that the average Brit earning money via social media makes around £1,223 a year, which is above HMRC’s £1,000 trading allowance. Yet only 44% of people say they have registered for a self-assessment tax return, and more than half don’t realise they need to pay tax on additional income or gifted items. That gap in understanding can lead to penalties and interest. Apex Accountants work with content creators every day. This TikTok tax guide explains how monetisation works, how and when UK creators need to pay tax, what reliefs and deductions are available, and why accurate reporting matters. How TikTok Earnings Work UK creators monetise their TikTok channels in several ways: Creator Fund and Creativity Program The Creator Fund paid low rates of about £0.015–£0.075 per 1,000 views, but it has transitioned to the Creator Rewards or Creativity Program, now offering higher estimates like £0.40–£1.00 (around US $0.50–$1.20) per 1,000 qualified views for UK creators, paid monthly roughly 30 days after the month ends. Eligibility requires 10,000 followers and 100,000 views in 30 days. LIVE Gifts and Coins Viewers buy coins for gifts during lives, which are converted to diamonds for creators; TikTok takes a 50%+ cut, with payouts to PayPal or bank after reaching about £50 (higher than US $10), not the lower US minimums. Other Income Streams Brand deals, sponsorships, TikTok Shop sales, merchandise, and paid series subscriptions/tips are all taxable as self-employment income above £1,000 annually, often requiring self-assessment registration and potential VAT if turnover exceeds £90,000. Subscriptions typically require 10,000 followers, aligning with the summary. Is TikTok Income Taxable in the UK? Yes. HMRC treats earnings from TikTok as self‑employment income. The tax rules for UK TikTok creators apply to cash payments, affiliate commissions, and non-cash gifts received for promoting products. HMRC’s guidance on online platforms states that income from creating videos, podcasts or social‑media influencing counts towards your trading income, and you must declare it if your total trading income (from all side hustles) exceeds the £1,000 trading allowance. Gifts and services must be valued at their market value and included as income. You usually don’t need to tell HMRC if all of the following are true: Your total gross trading income from TikTok and all other self-employment or side-hustle activities is £1,000 or less for the tax year. You may be able to use the trading allowance, provided the relevant conditions apply. You do not need to complete a self-assessment tax return for another reason, and no other reporting obligation applies. The £1,000 trading allowance applies to your total trading income, not £1,000 for each individual activity. For example, if you earn £700 from TikTok and £500 from another side hustle, your combined gross trading income is £1,200. You will normally need to register for self-assessment and report the income, subject to your individual circumstances. 2026/27 TikTok Tax Guide: What Changes for TikTok Creators? The £1,000 trading allowance remains available for the 2026/27 tax year. However, creators with higher trading income also need to consider Making Tax Digital for Income Tax. From 6 April 2026, MTD for Income Tax applies to sole traders and landlords whose combined qualifying income from self-employment and property was more than £50,000 in the relevant 2024/25 tax year. The threshold falls to more than £30,000 from 6 April 2027, based on 2025/26 qualifying income and to more than £20,000 from 6 April 2028, based on 2026/27 qualifying income. Qualifying income is the combined gross income from self-employment and property before expenses. Affected creators generally need to keep digital records using compatible software, send quarterly updates to HMRC and complete the relevant end-of-period reporting. Exemptions may apply in some circumstances. Creators who need to register for Self-Assessment should also check the relevant registration deadlines. Worked Example: A TikTok Creator Earning £15,000 Suppose a TikTok creator earns £15,000 of gross trading income during 2026/27 and has no other income or allowable expenses. Because the gross trading income is more than £1,000, the creator will normally need to register for self-assessment and report the income. If the creator claims the £1,000 trading allowance instead of deducting actual allowable expenses, their taxable trading profit would be £14,000. Assuming they have the standard £12,570 Personal Allowance, no other income and no other adjustments, £1,430 would be taxable at 20%. For a taxpayer in England, Wales or Northern Ireland, this would produce an income tax liability of £286. The creator may also have a Class 4 National Insurance liability. For 2026/27, Class 4 NIC is charged at 6% on profits above £12,570 up to £50,270. On £14,000 of profits, the calculation would be £1,430 × 6% = £85.80, before considering any other relevant circumstances. This example assumes that the creator has no other income, claims the £1,000 trading allowance and has no other adjustments. A creator with employment income, other trading income, allowable expenses, losses or different circumstances could have a different tax position. They should retain records of income and expenses and check what they need to report to HMRC. Following this TikTok tax guide can help creators understand what income needs to be reported and what records they should retain for self-assessment. Gifts are income too Many creators receive free products or services in exchange for content. HMRC treats these perks as taxable income. The value you must include on your tax return is the fair market value of the item or experience. Failing to report freebies is one of the most common mistakes we see. Digital platform reporting – HMRC can see your earnings From 1 January 2024, TikTok has been sharing information about UK creators’ earnings with HMRC, including payouts from the Creator Fund, Creativity Program and TikTok Shop sales. Similar rules apply across many platforms and are being rolled out worldwide. HMRC uses this data to cross‑check your tax return, so it’s much harder to hide income. That’s why accurate records and timely filing are critical. View this post on Instagram A post shared by Chartered online Tax Accountants (@apex_accountants) When to register and report You need to register for Self‑Assessment if your total self‑employment income (TikTok plus any other freelance work) exceeds £1,000 during the tax year. Registration must be done by 5 October following the end of the tax year. For example, if you exceeded the allowance in the 2025/26 tax year (ending 5 April 2026), you must register by 5 October 2026. As per tax rules for UK TikTok creators, key reporting dates: DeadlineWhat happens5 OctRegister for self‑assessment if you’ve never filed before.31 JanSubmit your online tax return and pay any tax due for the previous tax year. The same date also covers the first “payment on account” for the current year.31 JulPay the second payment on account if required. Self‑Assessment isn’t just for income tax. It also calculates National Insurance contributions (NICs) for the self‑employed. In 2024/25, compulsory Class 2 NICs will be abolished. For 2025/26, you’ll mainly pay Class 4 NICs, charged at 6% on profits between £12,570 and £50,270, and 2% on profits above £50,270. These NICs are included in your Self‑Assessment bill. Does HMRC check TikTok? Yes. HMRC has powers to investigate undeclared income and will increasingly rely on data from platforms. The digital platform reporting rules mean TikTok sends UK earnings data directly to HMRC. HMRC also uses “badges of trade” to decide whether your activity is a hobby or a business, looking at factors like profit motive, regularity of transactions and commercial organisation. If your content generation looks like a business, you must pay tax. Penalties for failing to declare income can include interest and fines. How TikTok tax is calculated The amount of tax you pay depends on your taxable profit (income minus allowable expenses) and which tax bands your income falls into. For the 2025/26 tax year, the rates for England, Wales and Northern Ireland are: BandTaxable incomeIncome‑tax ratePersonal allowanceUp to £12,5700%Basic rate£12,571–£50,27020%Higher rate£50,271–£125,14040%Additional rateOver £125,14045% Your personal allowance reduces by £1 for every £2 of income over £100,000, so high earners can lose the allowance entirely. Sample calculations of tax on TikTok earnings To illustrate, the table below shows simplified examples assuming the creator has no other income and claims actual business expenses. National Insurance is calculated using Class 4 rates (6% between £12,570 and £50,270; 2% above). Figures are rounded. ExampleTikTok incomeAllowable expensesTaxable profitIncome‑tax dueClass 4 NICsTotal tax & NICsModest earner£20,000£5,000£15,000~£486~£146~£632Growing creator£60,000£10,000£50,000~£7,486~£2,246~£9,732High earner£120,000£20,000£100,000~£27,432~£3,257~£30,689 ** These numbers are indicative only and may change as per your personal circumstances.How the modest earner’s bill is worked out Income of £20,000 minus expenses of £5,000 leaves a profit of £15,000. After the personal allowance (£12,570), only £2,430 is taxable. Tax at 20% on that amount is £486, and Class 4 NICs at 6% on the same £2,430 add around £146 (total ~£632). National Insurance stops once your profits fall below £12,570. The growing creator with profits of £50,000 pays tax on £37,430 after deducting the personal allowance. All of that is in the basic rate band, so the income‑tax bill is about £7,486. Class 4 NICs at 6% on £37,430 add around £2,246 (total ~£9,732). A high earner with profits of £100,000 pays 20% on the first £37,700 and 40% on the rest, resulting in an income‑tax bill of £27,432 and Class 4 NICs of about £3,257, giving a total around £30,689. These calculations assume all other income falls within the same tax year and that the personal allowance is fully available. In practice, your total tax depends on your overall income, any other reliefs or allowances, and payments on account. Always seek professional advice for complex situations. TikTok Tax Relief and Deductions You can reduce your taxable profit by claiming legitimate business expenses. HMRC allows you to deduct actual expenses or claim the £1,000 trading allowance – not both. The allowance is often useful for small creators with minimal costs, but most professionals save more by deducting specific expenses. Common deductions include: Equipment and software: Laptops, cameras, smartphones, lighting, microphones and editing software. Phone and internet bills: Apportion the business use of your mobile or broadband. Only the business proportion is deductible. Home‑office costs: You can claim a proportion of rent, mortgage interest, utilities and council tax, or use HMRC’s simplified flat‑rate method. Beware of capital‑gains‑tax implications if you claim a permanent home office. Props and materials: Clothing, make-up, craft supplies, backdrops and other items used solely for your videos. Travel and subsistence: Transport to shoots, meetings or events, hotel costs and reasonable meals. Keep receipts and apportion journeys that have a personal element. Marketing and subscriptions: Costs of website hosting, paid ads, design software, social‑media management tools and professional training courses. Professional fees: Accountants, photographers, videographers, editors and legal advice. VAT on expenses: If your total taxable turnover exceeds £90,000 (the VAT registration threshold), you must register for VAT. VAT‑registered creators can reclaim input VAT on business purchases. Remember that mixed‑use items must be split between personal and business use, and you should maintain clear records. Gifts you receive for promotions are taxable income but not deductible as an expense; you cannot claim the cost of free products against tax. How We Handle Your Tax Matters At Apex Accountants, we specialise in helping influencers and digital entrepreneurs navigate the tax maze. Our personal tax services include: Self‑Assessment preparation and filing: We handle your tax return, ensuring all TikTok income and allowable expenses are correctly reported. Expense tracking and bookkeeping: We set up robust systems so you can capture income, gifts and receipts without stress. This protects you if HMRC questions your figures. VAT registration and compliance: We assess whether you need to register and manage your quarterly returns. National Insurance and pension planning: We advise on NIC obligations and help you maintain your state pension record. Incorporation advice: If your earnings grow, we can advise on whether switching from sole trader to limited company would reduce your tax bill and protect your assets. Tax planning and forecasting: Using your data, our personal tax services project future liabilities and suggest ways to reduce tax legally, from claiming reliefs to spreading income. We understand the creative economy and the tax on TikTok earnings. Whether you’re a micro‑influencer or running a full‑time TikTok business, Apex Accountants provides the support you need to stay compliant and maximise your earnings. FAQs About TikTok Tax in UK 1. Can I be employed and earn money on TikTok? Yes. You can have a full‑time job under PAYE and still earn money on TikTok. However, PAYE does not cover your TikTok tax. If your side‑hustle income exceeds £1,000, you must register for self‑assessment and file a tax return yourself. 2. Do I need to register as a business? If your income from TikTok or other freelancing exceeds £1,000, you must register as a sole trader with HMRC and file a tax return. Many creators operate as sole traders, but if your profits are significant, you might benefit from forming a limited company for liability protection and potential tax efficiency. Speak to an accountant to assess your situation. 3. What about VAT and TikTok? You only need to register for VAT if your taxable turnover (including TikTok Shop sales and sponsorships) exceeds £90,000 in a 12‑month period. Once registered, you must charge VAT on qualifying supplies and submit quarterly VAT returns. Some creators voluntarily register early to reclaim input VAT on equipment. 4. Are gifts taxable? Yes. Gifts and free services received in exchange for content count as income and must be included at their fair market value. You cannot deduct the value of gifts, but you can claim related expenses (e.g., postage for giveaways). 5. Do I pay tax on money I haven’t withdrawn yet? UK taxes operate on an accrual basis – you pay tax on income when it is earned, not when you withdraw it. Income credited to your TikTok balance counts as taxable income even if you leave it on the platform. Keep screenshots or statements showing dates and amounts. 6. What records should I keep? Maintain a spreadsheet or use accounting software to log all income and expenses, including the value of gifts. Create separate categories (e.g., Creator Fund, brand deals, shop sales) and save invoices, contracts and screenshots. HMRC requires you to keep records for at least five years after the 31 January filing deadline. 7. Can I claim the trading allowance and actual expenses together? No. You must choose either the £1,000 trading allowance or your actual expenses. If your expenses exceed £1,000, it’s usually better to claim actual costs. If your costs are lower, the trading allowance can simplify reporting. 8. Does my income matter if I reinvest everything into the business? Yes. Reinvesting earnings does not remove your tax liability. You’re taxed on profits after deducting allowable expenses, not on what you withdraw. Good recordkeeping and tax planning can help you optimise cash flow. 9. Does TikTok report creator earnings to HMRC? Yes. Certain digital platforms have reporting obligations under UK rules introduced from 1 January 2024. Relevant platforms may collect information about sellers and service providers and report details of income and transactions to HMRC. TikTok creators should therefore keep accurate records of Creator Fund or programme payments, TikTok Shop income, gifts, affiliate commissions and brand-deal payments. HMRC can use platform information to cross-check tax returns, although receiving a platform report does not automatically mean that tax is due. Conclusion TikTok offers exciting opportunities, but earning money from the platform comes with tax responsibilities. UK creators must report income above the £1,000 trading allowance, keep records of cash and non‑cash payments, and understand that TikTok shares earnings data with HMRC. The amount of tax you pay depends on your profits, tax bands and National Insurance contributions. By claiming legitimate expenses, tracking gifts, and meeting deadlines, you can minimise your bills and avoid penalties. If you’re unsure about your obligations or simply want more time to focus on content, Apex Accountants can help. Contact us today to ensure your TikTok success doesn’t become a tax headache.
Are Schools Closing Because of the Private School VAT Change? Posted on 16 September 202629 September 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 ChangeWhen It AppliedWhy It MattersVAT on private school education and boarding1 January 2025Core tuition and boarding fees are now standard-ratedPrepayments caughtPayments from 29 July 2024 for terms starting on or after 1 Jan 2025Paying early did not always avoid VATLoss of charitable business rates relief (England)1 April 2025Many 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. Get Free Consultation Call Anytime 0203 883 4777 Get Free Consultation 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 has averaged 74 closures and 83 new openings per year, showing a natural turnover. The relationship between VAT and private school closures therefore needs to be viewed alongside this longer-term pattern. 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. The picture since VAT took effect on 1 January 2025 is becoming clearer. Trade and government data indicate a rise in independent-school closures and mergers in the first VAT year, with around 105 schools closing or being absorbed by January 2026, while news tracking has recorded further closures through summer 2026, including schools that cited VAT alongside falling pupil numbers and other cost pressures. However, the government has rejected the idea that the policy has caused a sector-wide pupil exodus, pointing to continued school openings and broader demographic trends. Department for Education figures show that independent-school pupil numbers in England fell by 3.8% to 560,300 in January 2026, the second consecutive annual decline, even as the total number of independent schools has not collapsed. This suggests genuine financial pressure but does not establish VAT as the sole cause of either falling enrolment or individual school closures. 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 Get Free Consultation Call Anytime 0203 883 4777 Get Free Consultation Conclusion The biggest mistake is to reduce this story to a simple slogan. The evidence around VAT and private school closures shows a more complex picture. 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 charged? 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. How many private schools have closed since the VAT change? Independent-school closures have risen since the 20% VAT on fees took effect in January 2025, with the sharpest increases among smaller prep schools. By January 2026, around 105 independent schools had closed or merged, with further closures reported during 2026. The government maintains the change has not driven a mass pupil exodus to the state sector, and each closure decision also reflects falling rolls and cost pressures that predate the VAT change. When did the 20% VAT on private school fees start? 1 January 2025. Fees paid from 29 July 2024 for terms starting on or after 1 January 2025 were also caught by the anti-forestalling rules, so early payment did not escape the charge.
2026-27 VAT Fuel Scale Charges: Key Changes and What They Mean for Your Business Posted on 16 September 202629 September 2026 by Farazia Gillani From 1 May 2026, the UK VAT road fuel scale charges change to cover the period to 30 April 2027. These flat-rate charges apply when a business reclaims VAT on vehicle fuel but a car is used for private travel. In practice, instead of keeping detailed mileage logs, a fixed scale charge is added to the VAT return to account for the private fuel usage. The new charges (VAT-inclusive) are set by CO₂ emission band and by the length of the VAT accounting period (1, 3 or 12 months). Businesses must start using the updated scales in the first VAT period beginning on or after 1 May 2026. What is a fuel scale charge? A fuel scale charge is a fixed VAT amount a business pays when it reclaims VAT on fuel that is also used for private journeys. The amount is based on the vehicle’s CO₂ emissions and the length of the VAT accounting period.Typical 2026/27 charges include: CO₂ (g/km)12-month charge (£)3-month charge (£)1-month charge (£)120 or less657.00163.0054.001401,182.00294.0098.001801,708.00426.00142.00225 or more2,297.00574.00190.00 Table: Example VAT fuel scale charges for 2026–27 (VAT inclusive). Read: How Company Car Tax Bands Work and What You Will Pay Who Must Use Fuel Scale Charges? VAT-registered businesses may need to use a fuel scale charge where the business pays for fuel, the vehicle is also used privately and the business reclaims all the VAT on that fuel. The scale charge accounts for output VAT on the private-use element without requiring the business to separate every business and private journey. Businesses can instead reclaim VAT only on fuel used for business journeys, provided they keep detailed mileage records. They can also choose not to reclaim VAT on vehicle fuel, although HMRC rules apply consistently across vehicles where this option is used. If an employee or director pays for private fuel from personal funds and the business only reimburses or reclaims VAT relating to business mileage, a fuel scale charge will generally not be required. If you are unsure whether reclaiming all fuel VAT and applying the scale charge is appropriate, our VAT services can help review your fuel arrangements, VAT recovery and reporting position. Key Changes for 2026–27 VAT Road Fuel Scale Charges The 2026–27 rates are slightly lower than in 2025–26, following official adjustments. For instance, the top band (225+ g/km) charge fell from £2,314 to £2,297 per year, and the lowest band (≤120 g/km) fell from £661 to £657 per year. All businesses using the fuel scale must switch to these new figures for any VAT period starting 1 May 2026 or later. The published guidance makes clear that “the VAT road fuel scale charges are amended with effect from 1 May 2026” and must be used from that date onwards. How to Calculate Your Fuel Scale Charge Identify the car’s CO₂ emission band Check the official CO₂ figure from the vehicle logbook, the DVLA database, or the manufacturer’s certificate. If the exact figure isn’t a multiple of 5 g, round it down to the nearest 5 (e.g. 143 g becomes 140 g). If the vehicle has more than one CO₂ figure (e.g. separate figures for petrol and hybrid modes), use the lowest or the combined rating as advised. Special case – older cars: Cars registered before 1997 may lack a CO₂ figure. In that case, use engine size to pick a band: up to 1,400 cc = 140 g/km band; 1,401–1,999 cc = 175 g/km band; 2,000 cc or more = 225 g/km band. Get Free Consultation Call Anytime 0203 883 4777 Get Free Consultation Choose period and charge: Determine your VAT accounting period (1, 3 or 12 months). Then look up the corresponding charge for your CO₂ band. For example, a car at 125 g/km is in the 125 band, giving a charge of £246 for 3 months or £81 for 1 month (see table above). Pro-rate if needed: If the vehicle was used privately for only part of the VAT period, pro‑rate the charge. Calculate the percentage of the period during which the car was used, and apply that to the scale charge. For example, if the accounting period is 12 months but the car was used only 6 months, a 50% adjustment applies. This approach is confirmed in the guidance: “record [the percentage] of the accounting period. Apply this percentage to each road fuel scale charge to get a total figure”. Include on the VAT return The fuel scale charge (which already contains VAT) is added to the VAT return as output tax owing on fuel. In other words, businesses reclaim input VAT on fuel normally, then add the flat scale charge to Box 1 of the VAT return for the period. Also Read: VAT on Car Hire in the UK – What Businesses Need to Know Worked Example: Fuel Scale Charge and Net VAT Position Suppose a VAT-registered business has a petrol company car with CO₂ emissions of 145 g/km and submits VAT returns quarterly. Under the 2026/27 HMRC table, the three-month fuel scale charge is £311, including £51.83 of output VAT. Assume the business also buys £900 of fuel, including VAT, during the quarter and is entitled to reclaim the full VAT of £150. Vehicle3-month scale chargeOutput VATInput VAT reclaimedNet fuel VAT positionPetrol car, 145 g/km CO₂£311.00£51.83£150.00£98.17 net input VAT The business therefore reclaims £150 of input VAT on the fuel but accounts for £51.83 of output VAT through the fuel scale charge, leaving a £98.17 net VAT recovery in this example. The fuel scale charge is separate from the Benefit in Kind rules that can apply to company vehicles. Businesses assessing whether a company car remains tax-efficient can use our guide to company car tax bands and what you will pay to compare the wider tax costs before making or reviewing a vehicle decision. Applying the Scale Charge One driver per car: The scale charge is applied per person-car combination. Each employee or director using a company car privately incurs one charge for that vehicle. If more than one person uses the same car, each must be treated separately. Multiple cars: Where an individual has multiple cars, apply the same steps to each vehicle. If two cars happen to fall in the same CO₂ band for the same person, HMRC notes they “should be treated as if they were one car” when calculating percentages. In practice, this rarely affects the outcome compared to treating them separately. Record-keeping: Keep records of how each charge was calculated (CO₂ figure sources, period length, and any percentage used). This protects you in case of a VAT inspection. Electric/hybrid vehicles: A fully electric car does not use VATable fuel, so the fuel scale does not apply. For plug-in hybrids or conventional hybrids, use the petrol/diesel CO₂ band as above. How We Can Help You Deal with VAT on Automobiles VAT Return Support: We help businesses apply the correct fuel scale charges on each VAT return. Our team will ensure the right CO₂ band and period are used, so the fuel VAT is calculated correctly. Company Car and Expenses Advice: Our experts can advise on company car tax and benefit rules. We explain the fuel scale method and alternatives (like mileage logs) so you choose the best option. Record-Keeping and Compliance: We can set up simple spreadsheets or software entries to track usage percentages and keep evidence of CO₂ figures. This ensures your accounting is robust for HMRC review. Proactive Updates: Tax rules change frequently. We monitor official updates (such as the new 2026/27 rates) and notify our clients promptly. You can rely on Apex Accountants to keep you compliant without surprises. Our dedicated advisers stay current with all HMRC rules and can guide you through the fuel scale process. If you provide cars or fuel to staff, our firm can take the stress out of calculating and reporting these VAT charges correctly. For more details or personalised support, get in touch with the Apex Accountants team. We can help you implement the new VAT fuel scale charges smoothly and ensure your VAT returns are accurate. Get Free Consultation Call Anytime 0203 883 4777 Get Free Consultation FAQs About Fuel Scale Charges in UK What if fuel is paid by personal funds? The scale charge only applies when the company reclaims fuel VAT. If an employee buys personal fuel with no VAT reclaimed, no output tax is due. How to find a car’s CO₂ figure? Check the car’s V5C logbook, or use the DVLA online vehicle checker or the manufacturer’s data. Use certificates if needed. Q: Where do I find my car’s CO₂ figure for the scale charge table? A: Use the figure on the car’s V5C registration certificate or the manufacturer’s official combined CO₂ emissions figure. The scale charge band is set by that figure, so an error here means the wrong output tax.
