Value Added Tax (VAT) Archives

Electricity VAT Cut 2026: What the Six-Month Zero Rate Means from 1 October

Posted on 10 August 202611 August 2026 by zaid Najam

The government’s announcement, made in July by new Prime Minister Andy Burnham as one of his first acts in office, frames the electricity VAT cut as immediate relief ahead of winter. For households and the businesses that supply or advise them, the detail matters more than the headline figure.

Electricity VAT for UK Businesses: Where Apex Accountants Fits In

The zero rate runs from 1 October 2026 to 31 March 2027, covering the remainder of the current financial year. It is expected to strip around £45 a year off the typical bill under the Ofgem price cap, and the Treasury puts the cost to the public purse at roughly £850 million for 2026-27, funded by cancelling the planned Digital ID programme rather than fresh borrowing. Whether the relief continues past March 2027 will be decided at the Autumn Budget.

Suppliers must apply the reduction automatically, including to customers on fixed-rate tariffs — the change affects the tax component of a bill, not the unit price, so a fixed deal offers no shelter from it.

Gas Is Untouched

The relief is electricity-only. Domestic and qualifying gas supplies stay on the 5% reduced rate; standard-rated business gas remains at 20%. HMRC’s existing guidance on fuel and power is unchanged in that respect, and there’s no indication the zero rate will extend to heating oil, LPG or other qualifying fuels.

Who Benefits from the Electricity VAT Zero Rate

The rules on electricity VAT for UK businesses extend beyond ordinary domestic bills, but only for organisations that meet the qualifying conditions:

Small businesses below the de minimis threshold, already certified for domestic-use energy VAT relief
Charities, in respect of non-business electricity use
Residential care homes and similar qualifying premises

Organisations relying on a supplier declaration to secure the reduced rate should expect the same mechanism to carry over to the zero rate — worth revisiting where usage is mixed between qualifying and non-qualifying purposes.

A Deliberate Gap For Northern Ireland And EV Charging

Northern Ireland keeps the 5% rate. Windsor Framework rules tie electricity VAT there to EU law, which the UK cannot amend unilaterally — the executive instead receives equivalent funding. Because the electricity VAT cut 2026 does not extend to Northern Ireland, multi-site operators with premises on both sides of the Irish Sea should budget for bills that diverge from October.

A second gap sits with electric vehicles. Under Revenue and Customs Brief 4 (2026), HMRC treats electricity at public charge points as standard-rated because the supply isn’t made to a dwelling. From October, home charging carries no VAT, while public charging still carries 20% — a gap fleets reimbursing mileage should model before winter.

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Why the Saving May Look Smaller on the Bill

Ofgem’s Energy Price Cap is updated every three months, and the next cap period begins on 1 October, the same day the electricity VAT cut takes effect. MoneySavingExpert has warned that the expected £45 saving could be largely offset by a forecast rise in the October Price Cap. Martin Lewis noted that rising wholesale energy costs could mean many households see little of the headline saving in practice. The £45 figure should therefore be treated as an estimated saving rather than a guaranteed reduction in overall energy bills.

Where Apex Accountants Fits In

The new VAT rate may affect more than just your electricity bill. Finance teams, care providers, landlords and energy-intensive small businesses may need to update billing systems, review supplier certificates and check how the change is reflected in VAT returns from 1 October.

Apex Accountants & Tax Advisors can review your current electricity VAT treatment, confirm whether your organisation qualifies for the Electricity VAT zero rate and identify any areas where reduced or standard rates still apply.

We can also help you assess the cash flow impact, review mixed-use energy supplies and prepare the supporting evidence HMRC may require.

Contact Apex Accountants today to arrange a free consultation and make sure your organisation is ready for the change.

Frequently Asked Questions

When does the electricity VAT cut start and end?

From 1 October 2026 to 31 March 2027, covering the rest of the current financial year.

Does the VAT cut apply to gas as well as electricity?

No. Gas stays at the existing rates—5% for qualifying domestic use and 20% standard-rated for business supplies.

Will businesses see the zero rate too?

Only where they already qualify for domestic-use energy VAT relief, typically small users below the de minimis threshold, alongside charities and care homes.

Does Northern Ireland get the same VAT cut?

No. Northern Ireland remains on the 5% rate due to Windsor Framework rules; the Executive receives separate compensating funding instead.

Will fixed-tariff customers still get the saving?

Yes. Suppliers are expected to apply the reduction regardless of tariff type, since it removes tax rather than changing the unit price.

Could the price cap rise cancel out the saving?

Partially. The Ofgem price cap is reviewed on the same date the cut begins, and a forecast increase may reduce the net benefit below the headline £45 figure.

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

Posted on 19 July 202619 July 2026 by Nida Umair

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

Quick answer:

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

What is the Capital Goods Scheme for VAT?

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

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

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

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

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

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

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

What’s changing under the Capital Goods Scheme simplification?

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

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

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

When do the new CGS rules take effect?

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

In practice, this means:

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

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

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

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

Example:

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

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

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

Why is HMRC removing computers from the Capital Goods Scheme?

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

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

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

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

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

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

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

What should businesses do to prepare?

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

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

FAQs About HMRCs Changes To Capital Goods Scheme

Does the Capital Goods Scheme only affect partly exempt businesses?

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

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

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

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

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

Is this confirmed law or still a proposal?

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

Do I need an accountant for Capital Goods Scheme calculations?

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

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

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

Next steps

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

UK VAT Group Advice After Barclays Ruling Raises Concerns

Posted on 14 July 202614 July 2026 by Rida Ahmed

A recent Upper Tribunal ruling has increased demand for UK VAT group advice by casting doubt over the terms on which international businesses can access UK VAT grouping, raising concerns that a structural advantage the UK has long promoted to attract overseas investment may be quietly eroding.

The decision, handed down on 8 June 2026 in Barclays Services Corporation & Anor v HMRC [2026] UKUT 211 (TCC), dismissed an appeal by a US-incorporated company that sought to join its UK affiliate’s existing VAT group. The judgement turned primarily on whether the company’s UK branch qualified as a “fixed establishment” at the time of the application. The tribunal concluded it did not.

Tax advisers say the implications reach well beyond one bank’s corporate structure.

Why UK VAT group advice matters after Barclays

Before examining the ruling, it is important to understand the implications.

Under section 43 of the Value Added Tax Act 1994, two or more commonly controlled corporate bodies can apply to be treated as a single taxable entity for VAT purposes. The immediate benefit is straightforward: supplies between members of the group are disregarded for VAT. No VAT is charged on intra-group transactions, and no compliance is required on those supplies.

For businesses that make largely exempt supplies, such as financial services and insurance firms, this matters significantly. Because they cannot recover the VAT they incur on services they receive, any VAT charged on intra-group services becomes a permanent, irrecoverable cost. VAT grouping eliminates this.

The UK’s approach has historically been described as relatively permissive compared to EU member states. For overseas companies wishing to join a UK VAT group, the key condition is that the company must have a “fixed establishment” in the UK — meaning a genuine operational presence with sufficient human and technical resources available to it.

What the Barclays Case Was About

Barclays Services Corporation (BSC) is a Delaware-incorporated company that provides shared services to other Barclays entities worldwide, including Barclays Execution Services Limited (BESL) in the UK. BESL is the representative member of the Barclays UK VAT group.

As part of a broader regulatory restructuring, BSC registered a UK branch in July 2017. VAT planning was openly identified as a key driver. BESL applied for BSC to join the VAT group on 1 December 2017, with internal documentation indicating a one-off benefit of £21 million was available if the branch was operational before year-end.

HMRC refused the application on two grounds. First, it said BSC had no fixed establishment in the UK at the date of the application. Second, and in the alternative, it argued that refusing admission was “necessary for the protection of the revenue”, a power HMRC holds under the legislation.

The First-tier Tribunal upheld HMRC’s refusal in August 2024. The Upper Tribunal, after hearing the case in March 2026, issued its judgement on 8 June 2026 and dismissed the appeal. The full decision is published on GOV.UK.

Why BSC failed the VAT group fixed establishment test

The Upper Tribunal found that BSC’s UK branch was, in the tribunal’s own word, “skeletal” at the time of the application.

The key findings were the following:

UK-based staff were not employed by BSC directly
The branch lacked ownership or comparable control over those employees
The branch did not control the premises or technical systems it used
The resources associated with the branch had initially been attributed to BESL, not to BSC

A fixed establishment, the tribunal confirmed, requires more than a registered address or a Companies House filing. It requires the permanent presence of both human and technical resources that are genuinely controlled by and available to the overseas entity. Having costs attributed to a UK affiliate while the branch itself is being set up does not satisfy that test.

The Upper Tribunal added obiter comments — observations that were not strictly necessary for the outcome — that the bar for what qualifies as a fixed establishment may have been set too low in earlier cases. These remarks are not binding, but they are significant.

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The ‘Protection of the Revenue’ Question

The second ground raises a broader concern.

HMRC can refuse a VAT grouping application where it considers the refusal “necessary for the protection of the revenue”. The Upper Tribunal, while not required to decide the point given its conclusion on fixed establishment, indicated that HMRC could reasonably have refused the application on this ground as well.

The reasoning was that the anticipated VAT savings were very considerable, the branch’s substance on the application date was minimal, and the timing of the application had been expressly driven by the opportunity to capture a one-off pre-year-end tax saving that was described internally as a “financial imperative”.

This is the part of the judgement that has attracted most concern from advisers. Abigail McGregor, a tax lawyer at Pinsent Masons, said the obiter comments on the protection of revenue would concern businesses. “The suggestion that there might be a test weighing substance against the amount of savings is especially concerning, as it introduces a level of uncertainty that will no doubt impact the entire industry,” she said.

What This Means in Practice

The immediate effect is clear. Overseas companies looking to join a UK VAT group must demonstrate real, controlled presence in the UK. A branch registration alone is insufficient. The substance must exist at the time of the application — not merely be anticipated.

The wider concern is different. If HMRC can refuse a grouping application on the basis that the VAT savings are large relative to the branch’s substance, even where a fixed establishment technically exists, the protection of the revenue power becomes a more significant constraint on VAT group planning than many businesses had previously assumed.

Several other cases are currently stayed behind the Barclays appeal. Their outcome will depend on their individual facts, but the Barclays decision provides the framework against which they will be assessed.

The potential business impact falls into three categories:

For existing cross-border VAT groups:

Businesses should review whether their overseas member entities continue to satisfy the fixed establishment test. Circumstances change. A branch that was adequate when the group was formed may not meet the standard today, and HMRC has the power to direct that a company leave a group.

For businesses planning to restructure:

The Barclays case illustrates the risk of applying for VAT grouping before the operational substance is fully in place. HMRC can scrutinise the timing of an application and the documented rationale for it. Internal communications that describe the purpose of a restructuring will be relevant.

For partially exempt businesses:

Financial services firms, insurers, and others that cannot fully recover input VAT face the greatest practical exposure. For these businesses, the irrecoverability of VAT on intra-group services is a real cash cost. The ability to form a VAT group is not a planning luxury but a commercial necessity.

Cross-border VAT group advice after Barclays

The ruling comes against a backdrop of shifting HMRC policy on international VAT grouping.

In November 2025, HMRC reversed its position on cross-border VAT grouping related to EU branches, restoring what is known as the “whole establishment” principle. That change, announced at the 2025 Autumn Budget, meant that services between a UK head office and an overseas branch are once again disregarded for VAT purposes under the intra-entity rules, even if the branch belongs to a VAT group in a different country. The ICAEW confirmed this in its Budget commentary.

That was a positive development for many international groups. The Barclays decision represents a countervailing pressure, tightening the conditions on which foreign subsidiaries and group service entities can be admitted to UK VAT groups in the first place.

How Apex Accountants & Tax Advisors Can Help

The Barclays decision is a practical reminder that VAT grouping, often treated as a one-time administrative matter, requires ongoing review. Eligibility conditions can change. HMRC’s approach to those conditions is evolving. And the consequences of getting it wrong can be significant.

Apex Accountants & Tax Advisors works with businesses, including multinational groups and partially exempt organizations, to:

Review the fixed establishment position of overseas entities currently within or seeking to join a UK VAT group
Assess the protection of the revenue risk for applications where anticipated savings are substantial relative to the branch’s operational substance
Advise on VAT group structuring ahead of corporate restructuring, M&A, or regulatory change
Support responses to HMRC enquiries into existing VAT group arrangements
Review intra-group service contracts for VAT treatment, including where deferred payments or performance-based fees are involved
Provide cross-border VAT group advice on the interaction between the whole establishment rules and domestic VAT grouping

The VAT grouping rules are among the more complex areas of indirect tax. Early UK VAT group advice, before a restructuring or application proceeds, avoids the difficulties created when operational and tax planning run on different timelines.

Contact Apex Accountants today to review your VAT group position. Book a free consultation with one of our specialist indirect tax advisers.

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Frequently Asked Questions

What is a UK VAT group and who can join one?

A UK VAT group allows two or more commonly controlled corporate bodies to be treated as a single taxable entity. Supplies between group members are disregarded for VAT. To join, each company must be established or have a fixed establishment in the UK and must be under common control with the other members. The rules are set out in section 43 of the Value Added Tax Act 1994. HMRC guidance is available at GOV.UK: VAT registration groups.

What is the VAT group fixed establishment test?

A fixed establishment requires a genuine operational presence in the UK, with sufficient human and technical resources that are controlled by and available to the overseas entity. A registered branch, a Companies House filing, or premises used by a related UK company do not in themselves constitute a fixed establishment. The test is highly fact-sensitive. The Barclays ruling confirmed that resources attributed to a UK affiliate, rather than directly to the overseas branch itself, do not satisfy the requirement.

Can HMRC refuse a VAT grouping application even if conditions are met?

Yes. Under the Value Added Tax Act 1994, HMRC has the power to refuse an application if it considers that refusal is “necessary for the protection of the revenue”. The Upper Tribunal in Barclays indicated this power could be exercised where anticipated VAT savings are large relative to the substance of the entity seeking to join and where the application appears primarily driven by tax savings rather than commercial reorganisation. This power is exercised on a reasonableness standard, meaning HMRC’s decision can be challenged but only where it could not reasonably have been satisfied that the grounds existed.

Does the Barclays ruling affect existing VAT groups?

Not directly. The case concerned a refusal to admit a new member. However, HMRC also has powers to direct that a body leave a VAT group and can terminate grouping where it considers this necessary. Businesses with overseas entities in their VAT groups should review whether those entities continue to meet the fixed establishment test, particularly if the operational circumstances of the branch have changed since the group was formed.

What is the “protection of the revenue” power, and how far does it extend?

The protection of the revenue power allows HMRC to refuse or terminate VAT grouping where it believes a significant revenue loss would otherwise result. The Upper Tribunal’s comments in Barclays suggest that where the scale of anticipated savings is disproportionate to the substance of the applicant, this power could be exercised even where the fixed establishment test is technically met. These comments were obiter and are not legally binding, but they indicate the direction in which HMRC’s approach may develop.

What should businesses do now?

Businesses with cross-border VAT group arrangements should carry out a structured review of the fixed establishment position of any overseas members, check that operational substance is adequate and documented, and review the rationale for current grouping arrangements in light of the Barclays decision. Where a VAT group application is planned, the substance of the applicant entity should be established before the application is made, not as an anticipated future development.

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

Posted on 13 July 202613 July 2026 by Farazia Gillani

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

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

What Is the Online Marketplace VAT Liability Consultation?

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

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

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

Why Is the Government Doing This?

The short answer: money and fairness.

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

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

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

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

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

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

How Does Marketplace VAT Work Right Now?

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

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

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

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

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

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What Would Actually Change for UK Sellers?

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

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

A few things the proposal makes clear:

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

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

Who Would Be Protected? The Threshold Question

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

Option 1: A Minimum Platform Threshold

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

Option 2: A VAT rate relief

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

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

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

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Who’s Excluded From the Proposed Rules?

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

Takeaway and Food Delivery Platforms Are Explicitly in Scope

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

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

What About the Flat Rate Scheme?

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

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

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

What Should Sellers and Their Accountants Do Now?

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

A practical short-term checklist:

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

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

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

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

Our support covers:

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

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

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Conclusion

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

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

Common Questions From UK Marketplace Sellers

Will this affect my Amazon, eBay or Etsy account?

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

Does this affect sales through my own website?

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

What if my turnover is under £90,000?

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

Will marketplaces ask for more information from sellers?

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

Are business-to-business sales included?

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

Are Schools Closing Because of the Private School VAT Change?

Posted on 4 June 20264 June 2026 by Farazia Gillani

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

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

How Schools Are Affected by the Private School VAT Change

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

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

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

Read: Everything About HMRC v Colchester Institute VAT Dispute

Why Larger Schools Are Now Affected

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

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

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

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Most schools will not immediately close. They may first:

Use reserves
Cut non-essential spending
Raise fees

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

Are Larger Private Schools Actually Closing?

Yes, closures are happening, but context matters.

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

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

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

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

What Schools and Parents Should Check

Practical steps matter more than headlines.

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

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

How We Help Private Schools Deal With VAT

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

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

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Conclusion

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

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

FAQs on Private-School Closures in UK

When did VAT start on private school fees?

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

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

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

Is the business rates change a UK-wide policy?

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

Are larger schools always hit harder than smaller ones?

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

Are nursery classes in private schools still exempt from VAT?

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

What about after-school clubs and holiday clubs?

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

Can local authorities reclaim VAT on private school placements?

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

Do bursaries remove the VAT charge?

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

Are registration or application fees also caught?

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

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

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

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

Posted on 4 June 20264 June 2026 by Farazia Gillani

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

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

What You Need To Know About The Summer VAT Cut

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

The 5% VAT relief covers three main areas:

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

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

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

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

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

Read: Everything About VAT Return Deadlines in the UK

Temporary VAT Cut – Which Sales Qualify and Which Do Not

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

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

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

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

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

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How to Prepare Pricing, Tills, and Records

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

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

Practical Steps

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

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

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

Summer VAT Cut on Booking and Bundle Considerations

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

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

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

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

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Conclusion

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

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

FAQs on 5% VAT Cut

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

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

Is the relief available across the whole UK?

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

What counts as a children’s meal?

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

Does takeaway food qualify for a temporary VAT cut?

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

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

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

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

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

Do family tickets qualify even if they include adults?

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

Which attractions are covered?

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

Are sports events or sports facilities included?

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

What if customers booked early or bought a pass?

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

Can You Reclaim VAT on Transaction Fees in the UK

Posted on 4 June 20264 June 2026 by Farazia Gillani

Most businesses ask this as a yes-or-no question, but UK VAT does not work that neatly. VAT on transaction fees can be recoverable, partly recoverable, or blocked altogether, depending 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 situation	Usual VAT outcome
A trading company issues new shares to raise funds for its taxable business	Often 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 gain	Usually 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 consideration	Often 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 trade	Often 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 shares	Usually 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 costs	Recovery 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 incurred	Recovery can still be possible if there is genuine, objective evidence of an intention to make taxable supplies. Failed projects do not automatically destroy recovery.

What Decides Whether the VAT Comes Back

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.

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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.

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

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.

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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

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

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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 step	Why it matters
Engagement letter in the right entity’s name	Helps show which business contracted for the service and was the recipient.
VAT invoice in that same entity’s name	A recoverable claim needs a valid VAT invoice and records that support it.
Payment trail	Official 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 plan	These 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 model	Helps show that services are genuine, for consideration, and more than nominal.
Actual management invoices after completion	Strong evidence that the structure reflected real taxable activity rather than a vague future intention.
Partial exemption workings	Essential where deal fees support both taxable and exempt activity, including share sales or exempt lending.
Six-year retention of VAT records	VAT 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

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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.

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.

Court of Appeal ruling puts VAT on education grants under scrutiny

Posted on 18 May 202610 July 2026 by Farazia Gillani

The UK Court of Appeal has clarified the VAT treatment of education grants, marking an important shift for schools, universities, and training providers. The decision resolves longstanding uncertainty regarding when grants are subject to Value Added Tax and provides clear guidance for finance teams across the education sector. The ruling focuses on whether funding should be considered payment for a supply of services, with potential implications for both current and historic grants.

Understanding the Court of Appeal Ruling

The Court examined whether certain education grants are consideration for taxable supplies. It concluded that grants tied to delivering a specific service, programme, or outcome may be treated as taxable. Conversely, unconditional grants with no connection to service delivery remain outside the scope of VAT. This aligns with the broader principle set out in HMRC guidance that VAT liability depends on the economic reality of the transaction, not just its label (HMRC VAT Notice 700).

The ruling emphasises that conditional grants—those that require measurable outcomes—can create a supply of services. If a provider receives funds contingent on delivering education or training, HMRC may consider it a supply for VAT purposes. Unconditional grants, such as general operational funding without service obligations, remain non-taxable. This clarification helps organisations assess which types of funding are now subject to VAT liability.

Implications for Education Providers

The decision affects a wide range of institutions, including:

State-funded schools and colleges: Targeted grants for specific programmes may now attract VAT, making the education grant VAT rules for schools particularly relevant.
Higher education institutions: Research grants or subsidised courses funded by councils or private sponsors may be taxable if they are linked to outcomes.
Vocational training providers: Apprenticeships or short courses funded conditionally may fall under VAT if tied to service delivery.

Providers must evaluate grant agreements carefully to determine VAT treatment. The ruling also signals that HMRC may scrutinise conditional funding more closely during audits. Accounting teams need to distinguish between taxable and non-taxable funding to ensure accurate reporting and compliance with the VAT Act 1994.

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Practical Steps for Compliance

Finance teams should take several practical measures to remain compliant:

Review grant agreements: Identify grants with conditions tied to service delivery.
Update accounting processes: Ensure VAT treatment is accurately reflected in ledgers and returns.
Train staff: Ensure finance teams understand the new rules to avoid misreporting.
Seek professional guidance: Complex arrangements or historic grants may require expert interpretation.

Failure to comply with the VAT rules can result in penalties, interest, and potential audits. This Court ruling is a reminder that conditional grants are treated based on substance, not form, emphasising the necessity for proactive assessment.

Strategic Considerations for Directors and Finance Teams

Directors and finance teams should consider:

Maintaining detailed records of conditional funding and related outputs.
Confirming whether grants trigger VAT or remain outside the scope.
Consulting tax professionals for any grant arrangements involving measurable obligations.
Reviewing historic grants that may now require VAT adjustments.

The Court’s decision reinforces the principle that VAT is applied based on the economic substance of a transaction. Conditional grants represent a taxable supply if tied to the delivery of services, whereas unconditional funding remains exempt. This nuanced approach ensures that institutions account for VAT correctly and reduces the risk of HMRC challenges.

Apex Accountants & Tax Advisors: Supporting Education Providers

Apex Accountants & Tax Advisors can provide VAT guidance for education providers reviewing revised rules and seeking to reduce unintended liabilities. Our services include:

Reviewing grant agreements to identify potential VAT liabilities.
Advising on proper VAT accounting for conditional grants.
Preparing accurate VAT returns and liaising with HMRC if required.
Implementing systems to track funding and associated tax obligations efficiently.

By integrating these practices, education providers can minimise exposure to VAT liabilities, maintain compliance, and focus resources on delivering educational outcomes. Contact us today to get started!

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FAQs

Q1: Are all education grants now subject to VAT?
No. Only grants that are linked to the delivery of a service, programme, or specific outcomes may be considered taxable. Unconditional grants, such as general operational funding or scholarships with no performance requirements, remain outside the scope of VAT. This distinction is crucial for finance teams when assessing VAT liabilities on both current and historic grants (HMRC VAT Notice 700).

Q2: How can providers determine if a grant is taxable?
Providers should carefully review each grant agreement to check for conditions that create a supply of services. Factors include:

Whether funding is conditional on delivering a specific course, programme, or measurable educational outcome.
Reporting or performance obligations tied to the grant.
Any requirement to provide services directly to students, sponsors, or government bodies.

For complex arrangements, VAT guidance for education providers is recommended to avoid misclassification and support compliance with VAT law.

Q3: What are the consequences of incorrect VAT treatment?
Misreporting VAT can have serious financial and compliance implications, including:

Payment of backdated VAT on amounts incorrectly treated as exempt.
HMRC penalties and interest charges.
Increased scrutiny in future audits, particularly for conditional grant funding.

Education providers should ensure that VAT accounting accurately reflects the economic substance of each grant to mitigate these risks (HMRC VAT Compliance).

Q4: Does this ruling apply to historic grants?
Yes. Grants received in the past may need reassessment if their VAT treatment was previously unclear. This is particularly relevant for conditional funding received over the last several years, where performance obligations or outcomes were linked to the payment. Providers may need to adjust accounting records, submit amended returns, or consult HMRC to confirm the correct treatment.

Q5: What practical steps should providers take to remain compliant?

Maintain clear documentation for all grants, including contracts, correspondence, and conditions.
Regularly review grant agreements for VAT implications before accepting or recognising income.
Train finance and administrative staff on conditional vs unconditional grants, including VAT rules for education grants in schools where funding is tied to specific outcomes.
Seek professional advice for complex arrangements or when in doubt to ensure proper VAT reporting.

Everything About VAT Return Deadlines in the UK

Posted on 16 May 202617 May 2026 by Farazia Gillani

Submitting a VAT return on time is one of the most important VAT responsibilities for UK businesses. A missed deadline can lead to penalty points, late payment charges and interest.

Most VAT-registered businesses submit a VAT return every 3 months. This period is known as the VAT accounting period. The usual deadline is one calendar month and 7 days after the end of the VAT period. This date is also usually the deadline for paying VAT owed.

For example, if your VAT period ends on 31 March, your VAT return and payment are usually due by 7 May.

What Is a VAT Return?

A VAT Return shows:

how much VAT your business charged on sales
how much VAT your business paid on purchases
whether you owe VAT
whether you can reclaim VAT

Even if there is no VAT to pay or reclaim, a VAT-registered business still needs to submit a return. This is often called a nil VAT Return.

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Standard VAT Return Deadline

For most businesses, the VAT deadline follows a simple rule.

VAT period ends	VAT Return usually due	VAT payment usually due
31 March	7 May	7 May
30 June	7 August	7 August
30 September	7 November	7 November
31 December	7 February	7 February

The exact date can vary depending on your VAT accounting period. Your VAT online account shows your return dates and when payment must clear.

Simple Rule to Remember

Situation	Deadline
Standard quarterly VAT Return	1 month and 7 days after the period ends
Monthly VAT Return	Usually 1 month and 7 days after the month ends
Nil VAT Return	Same deadline as normal
VAT payment	Usually the same date as the return deadline

This means the filing deadline and payment deadline are normally the same.

VAT Payment Deadline

VAT payments must reach the account by the payment deadline. Therefore, businesses should not delay making payments until the last minute.

Different payment methods can take different amounts of time. Direct debit can help with timing because the payment is normally collected 3 working days after the VAT Return is submitted, but the return must still be filed by the deadline.

What If the Deadline Falls on a Weekend or Bank Holiday?

Filing deadline: The same date applies even if it falls on a weekend or bank holiday. You still must file by that date (e.g., if 7 May is a Sunday, the deadline is still 7 May).
Payment timing: If you pay by bank transfer, it must be in HMRC’s account by the close of business on the due date. If the payment date is a weekend or bank holiday, aim to pay on the last working day before it to avoid late-payment penalties.

You can file online on the official date, but if the due date is a non-working day, plan for the payment to clear by the last working day before that date.

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Annual Accounting Scheme Deadlines

Some small businesses use the VAT Annual Accounting Scheme. The scheme works differently from standard quarterly VAT returns.

Under this scheme, a business usually submits one VAT Return each year. If the accounting period is between 4 and 12 months, the return is due 2 months after the end of the accounting period. When the accounting period lasts fewer than 4 months, the return must be submitted 1 month after the period concludes.

Annual Accounting Scheme	Deadline
Accounting period of 4 to 12 months	Return due 2 months after period end
Accounting period under 4 months	Return due 1 month after period end
Monthly advance payments	Due at the end of months 4 to 12
Quarterly advance payments	Due at the end of months 4, 7 and 10
Final balancing payment	Due with the annual return

This scheme can help with budgeting, but the payment plan must be followed carefully.

Payments on Account for Large Businesses

Large businesses with high VAT liabilities may need to make VAT payments on account.

These businesses usually make advance payments during the VAT quarter, instead of paying the full amount only at the return deadline. The payment dates are the last working day of the second and third months of the VAT quarter. The 7-day electronic payment extension does not apply to these payments.

Payment type	When it is due
First payment on account	Last working day of month 2
Second payment on account	Last working day of month 3
Balancing payment	With the VAT Return
VAT Return	Based on the business payment schedule

This mainly affects larger businesses, but it is important to know if your VAT position grows over time.

What Happens If a VAT Return Is Late?

For VAT periods starting on or after 1 January 2023, late submission penalties use a points-based system. A business gets a penalty point each time it submits a VAT Return late. This includes nil returns and repayment returns. Once the penalty point threshold is reached, a £200 penalty can apply.

Filing frequency	Penalty point threshold
Annual	2 points
Quarterly	4 points
Monthly	5 points

After the threshold is reached, further late returns can lead to more £200 penalties.

What Happens If VAT Is Paid Late?

Late payment penalties can apply when VAT is not paid in full by the due date.

The current late payment rules are:

How late the VAT payment is	Penalty position
Up to 15 days late	No first or second late payment penalty
16 to 30 days late	First penalty based on VAT owed at day 15
31 days or more late	Further penalty and daily penalty may apply

Late payment interest can also run from the first day the payment is overdue until it is paid in full.

Tips to Avoid Missing a VAT Deadline

Check your VAT online account regularly.
Keep digital VAT records up to date.
Reconcile sales and purchase records before the period ends.
Set reminders at least 2 weeks before the deadline.
Allow enough time for payment to clear.
Do not ignore nil returns.
Review your VAT scheme if cash flow is tight.

How We Help Businesses File VAT Returns

Apex Accountants offers comprehensive support to keep your VAT affairs on track:

VAT return preparation: We prepare and file your VAT returns accurately and on time, so you never miss a deadline.
Deadline reminders: Our team monitors your VAT periods and sends alerts well before filing and payment dates.
Scheme advice: We can advise if annual accounting, flat rate, or other schemes suit your business and handle the filings accordingly.
Payment planning: We help you manage cash flow for VAT payments – including setting up direct debit and scheduling instalments, if needed.
Penalty help: If you face any HMRC penalties or queries, we’ll liaise with HMRC on your behalf and guide you through appeals.

Always file and pay your VAT on time to avoid fines. Keep the one-month+7-day rule in mind, use your online VAT account for dates, and consider professional help to manage your VAT obligations smoothly.

With Apex Accountants handling your VAT returns, you can focus on running your business while we manage the deadlines. We prepare accurate filings, check the figures carefully and help you meet the correct VAT payment deadline without last-minute stress.

We also support you with payment planning, digital records and timely reminders, so your VAT returns stay compliant and organised throughout the year.

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FAQs About VAT Return Deadlines

When exactly is my VAT return due?

It’s due 1 calendar month + 7 days after your VAT period ends. For most quarterly filers, that means if your period ended 31 March, the return is due by 7 May.

What if I owe no VAT?

You still must submit a nil return by the deadline. Failing to file a nil return on time still risks penalties.

Does Direct Debit extend the deadline?

No – it doesn’t change the filing due date. It only means HMRC collects funds 3 days later, reducing the chance of a late payment.

What if the due date is a weekend or holiday?

Make sure any payment clears on the last working day before the due date. (Filing the return should still be by the official date.)

How can I find my exact deadline?

Your online VAT account will list all upcoming return and payment deadlines. It’s wise to check there or set up reminders.