Resources Type: News

Study Calls for Tax Evasion as Corruption to Be Recognised in Crackdown on Financial Crime

Posted on by Farazia Gillani

Researchers examining global financial crime enforcement argue that recognising tax evasion as corruption could help governments hold financial criminals more effectively accountable. Researchers argue that classifying tax evasion alongside corruption offences could strengthen enforcement tools and improve cross-border cooperation against illicit financial flows.

The study, conducted by Professor Umut Turksen of the University of Exeter and Dr Alison Lui of Liverpool John Moores University and published in the Criminal Law Review, examines how countries prosecute tax evasion and concludes that treating it solely as a tax offence limits authorities’ ability to pursue serious offenders. The research highlights how the UK’s legal framework for tax crime is fragmented across multiple statutes and common law offences, which can complicate enforcement and accountability for corporate tax fraud and related corruption offences. The findings come as UK regulators, including HM Revenue & Customs (HMRC), continue efforts to close the tax gap and strengthen action against financial crime.

Why Treating Tax Evasion as Corruption Matters

The debate goes beyond academic theory. Tax evasion reduces government revenues, distorts markets, and undermines trust in the tax system. In the UK, HMRC initially estimated the tax gap — the difference between tax owed and tax collected — at £39.8 billion (4.8% of total theoretical tax liabilities) for the 2022–23 tax year, a figure later revised upwards to £46.4 billion (5.6%) in 2025

If tax evasion were more widely recognised as a corruption offence, enforcement agencies could potentially apply stronger investigative powers, including asset recovery tools and anti-corruption frameworks already used in other financial crime cases.

For businesses operating legally, stronger enforcement may also help create a more level competitive environment.

Key Points

  • Researchers argue tax evasion should be classified alongside corruption offences.
  • The UK tax gap was estimated at  £46.4 billion in 2025, according to HMRC.
  • Criminal tax evasion in the UK is prosecuted under legislation including the Fraud Act 2006 and Taxes Management Act 1970.
  • The Criminal Finances Act 2017 introduced corporate offences for failure to prevent tax evasion.
  • Stronger classification could expand international cooperation and enforcement.

What Has Happened

The study examines how financial crime is prosecuted across jurisdictions and concludes that tax evasion is often treated less seriously than other forms of economic crime.

Researchers argue this distinction creates enforcement gaps. In many legal systems, corruption offences trigger broader investigative powers, stronger penalties, and more extensive cross-border cooperation.

By comparison, tax evasion is sometimes handled primarily through tax law, which can limit investigative tools or reduce deterrence.

The study therefore suggests governments should recognise tax evasion as a form of corruption where individuals or companies deliberately conceal income or assets to avoid tax obligations, an argument increasingly discussed in debates around tax evasion as corruption UK law.

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Background and Context of the Debate – Tax Evasion as Corruption 

Under UK law, tax evasion is already a criminal offence, though debates around tax evasion as corruption UK law continue among policy researchers examining how financial crime should be classified.

Examples of tax evasion include:

  • Deliberately failing to declare income
  • Hiding assets offshore
  • Creating false invoices or accounts
  • Claiming deductions that do not exist

Serious cases may be prosecuted under multiple laws, including:

  • Fraud Act 2006
  • Proceeds of Crime Act 2002
  • Taxes Management Act 1970

In addition, the Criminal Finances Act 2017 introduced corporate criminal offences for failing to prevent the facilitation of tax evasion by employees or associated persons.

Key Details and Enforcement Measures

HMRC uses a range of enforcement powers when tackling tax evasion:

  • Civil penalties and assessments
  • Criminal investigations and prosecutions
  • Asset recovery under proceeds-of-crime rules
  • International information sharing through agreements such as the Common Reporting Standard (CRS)

Recent HMRC enforcement statistics show that the government continues to pursue criminal prosecutions in serious cases, although most tax compliance issues are resolved through civil investigation.

The new research suggests that broader anti-corruption frameworks could further strengthen enforcement in complex cases involving international financial flows.

Who Is Affected

Stronger enforcement of tax evasion rules affects several groups:

  • Individuals deliberately hiding income or assets
  • Companies facilitating evasion schemes
  • Financial intermediaries involved in offshore structures
  • Professional advisers who fail to meet compliance obligations

Legitimate businesses are indirectly affected as well. When competitors evade tax, they may gain an unfair financial advantage in pricing or margins.

Expert Analysis (Apex Accountants Insight)

From a professional accounting perspective, the debate highlights how tax enforcement continues to evolve.

Tax authorities globally are increasing cooperation through data-sharing agreements and digital reporting systems. The UK’s Making Tax Digital programme is designed to improve accuracy and reduce errors through digital record-keeping and reporting.

If tax evasion were more widely classified as corruption, enforcement agencies could potentially use additional tools already applied in anti-corruption investigations, including enhanced asset tracing and international legal cooperation.

For compliant businesses, stronger enforcement may reinforce trust in the system and reduce competitive distortions.

Why This Matters for UK Businesses

For UK companies, tax evasion enforcement is not only a legal issue but also a governance concern.

Businesses face several risks if tax compliance systems are weak:

  • Regulatory penalties and criminal liability
  • Reputational damage
  • Financial penalties and recovery of unpaid tax
  • Director disqualification or prosecution in serious cases

The corporate criminal offence under the Criminal Finances Act 2017 means companies can be liable if they fail to prevent employees or agents from facilitating tax evasion, reinforcing rules around corporate liability for tax evasion UK.

What Businesses Should Do

Companies can reduce risk through strong compliance procedures:

  • Maintain accurate financial records
  • Implement internal tax compliance controls
  • Conduct due diligence on advisers and intermediaries
  • Train staff on anti-tax evasion procedures
  • Seek professional advice where tax treatment is unclear

Clear documentation and transparent reporting remain central to HMRC compliance expectations.

How Apex Accountants Can Help with Tax Evasion Compliance

Apex Accountants & Tax Advisors assists UK businesses in strengthening safeguards against tax evasion risks and complying with legislation such as the Criminal Finances Act 2017, which created corporate criminal offences addressing corporate liability for tax evasion UK when employees or associated persons facilitate tax evasion.

Our support in this area focuses on services directly linked to preventing and managing tax-evasion risks, including reviewing internal procedures designed to prevent the facilitation of tax evasion, conducting risk assessments aligned with HMRC guidance, and helping businesses implement reasonable prevention procedures required under the law. We also provide advisory support when companies need to assess potential exposure to corporate criminal offences or respond to HMRC enquiries related to suspected tax evasion or facilitation risks.

If your organisation wants to strengthen its tax governance framework or review its procedures to reduce exposure to financial crime risks, contact Apex Accountants to discuss your compliance requirements with our team. Businesses interested in the wider corporate tax system can also read our detailed guide to corporation tax in the UK.

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Conclusion

The proposal to treat tax evasion as a form of corruption reflects a broader shift in how governments view financial crime. As enforcement becomes more coordinated internationally, the distinction between tax offences and wider economic crime may narrow.

For UK businesses, the message is clear: strong tax governance and transparent financial practices are increasingly essential. Companies seeking clarity on compliance obligations can benefit from professional advice and robust internal controls.

FAQs

What is tax evasion?

Tax evasion is the illegal act of deliberately avoiding paying tax that is lawfully due. In the UK, this includes hiding income, falsifying records, failing to declare profits, or using offshore accounts to conceal taxable income from HMRC.

What qualifies as corruption?

‘Corruption’ generally refers to the abuse of entrusted power for private gain. It can include bribery, fraud, embezzlement, and other forms of financial misconduct. Some researchers now argue that deliberate tax evasion should be treated as corruption because it undermines public finances and institutional trust.

What are the effects of tax evasion?

Tax evasion reduces government revenue that funds public services such as healthcare, infrastructure, and education. It also creates unfair competition by allowing dishonest businesses to undercut compliant firms, weakening trust in the tax system and financial institutions.

What is the most common form of tax evasion?

One of the most common forms of tax evasion is underreporting income. This may involve failing to declare cash payments, omitting revenue from accounts, or hiding profits through undeclared offshore structures or false expense claims.

Is tax evasion a criminal offence in the UK?

Yes. Tax evasion is a criminal offence involving deliberate concealment or misrepresentation to avoid tax. HMRC may pursue civil penalties or criminal prosecution depending on the seriousness of the case.

What is the difference between tax avoidance and tax evasion?

Tax avoidance involves using legal rules to reduce tax liability. Tax evasion involves illegal actions such as hiding income or falsifying records to avoid paying tax.

What is the UK tax gap?

The tax gap represents the difference between tax owed and tax collected. HMRC estimated the UK tax gap at £46.4 billion in 2025.

Can companies be prosecuted for tax evasion?

Companies can face criminal liability if they fail to prevent employees or associated persons from facilitating tax evasion under the Criminal Finances Act 2017.

How does HMRC investigate tax evasion?

HMRC may conduct civil investigations, request financial records, use data-sharing agreements with other countries, and pursue criminal prosecution in serious cases.

What penalties apply for tax evasion?

Penalties can include financial fines, repayment of unpaid tax, criminal prosecution, and imprisonment in serious cases.

Are Small UK Businesses Holding Back Growth To Stay Under The £90,000 VAT Threshold?

Posted on by Maliha Javaid

Fresh HMRC figures have reignited an old VAT debate: whether the UK’s compulsory VAT registration threshold is creating a “cliff edge” that nudges small firms to stay small. In the year to December 2025, 683,700 businesses reported turnover below the £90,000 VAT threshold, up from 671,000 a year earlier. Over the same period, the number in the £90,000 to £150,000 bracket fell to 280,400 from 306,300.

This pattern can look like “bunching” around the threshold, especially in price-sensitive, labour-heavy sectors like hospitality, personal services and trades. A recent Business and Trade Committee report also warned the VAT threshold can discourage expansion and that cliff edges penalise firms that try to grow.

Why this matters for small businesses

VAT is not just a tax rate. It is a pricing decision, a cash flow issue, and an admin commitment.

Once you register, you generally need to:

  • charge VAT on most standard-rated sales (often 20%)
  • file VAT returns (usually quarterly)
  • keep VAT records and follow VAT rules on invoices, evidence, and adjustments

For firms selling mainly to the public (who cannot reclaim VAT), adding VAT can feel like an overnight price jump. For firms selling mainly to VAT-registered businesses, registration can be neutral or even helpful, because customers can often reclaim VAT and you can reclaim VAT on your costs.

The £90,000 VAT threshold: what the rules actually say

The VAT registration threshold increased from £85,000 to £90,000 from 1 April 2024.

The two tests that trigger VAT registration

You must register if either applies:

TestWhat HMRC looks atWhat happens
Past turnover testTaxable turnover in the last 12 months goes over £90,000 (rolling, not tax year)Register within 30 days of the end of the month you went over
Future turnover testYou expect taxable turnover to go over £90,000 in the next 30 days aloneRegister immediately for that expected breach

Key point: it is a rolling 12-month calculation, not “your year end” and not “the tax year”.

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What counts as “taxable turnover”?

HMRC focuses on taxable supplies, which generally include standard-rated, reduced-rated, and zero-rated sales. Exempt and out-of-scope income is treated differently, which is where many small businesses slip up.

Why businesses may cluster below £90,000

The incentive is simple: staying unregistered can keep pricing simpler and admin lighter. But it can also cap momentum.

Common behaviours advisers report include:

  • turning away work late in the year to avoid breaching the line
  • reducing hours or pausing marketing during busy periods
  • delaying invoicing (which can be risky if it does not reflect the true tax point)
  • changing customer mix, focusing on zero-rated or VAT-friendly work where possible
  • restructuring activities into separate legal entities

That last point is the most dangerous if done mainly to sidestep VAT.

“Business splitting” and disaggregation risk

Splitting a business into multiple entities is not automatically illegal. But if it is an artificial separation, HMRC can treat the activities as a single taxable person for VAT. HMRC has detailed guidance on identifying when separate businesses are, in reality, one entity.

Practical ways to handle the VAT step-up without stalling growth

1) Price and margin planning (before you register)

  • model what happens if you add VAT to prices versus absorbing part of VAT in margin
  • review competitors: are they VAT-registered or not
  • check whether your customers can reclaim VAT (B2B often can, consumers cannot)

2) Consider VAT schemes that help admin or cash flow

Some schemes are designed to reduce friction:

SchemeWhy firms use itKey threshold
Flat Rate SchemeSimpler VAT calculation in some casesJoin if VAT turnover is £150,000 or less
Cash Accounting SchemePay VAT when customers pay you, helpful for slow payersJoin if taxable turnover is £1.35m or less

These are not right for every business, but they can ease the transition for some.

3) Improve record-keeping and invoicing controls

  • keep clear evidence for VAT invoices and receipts
  • set up bookkeeping so VAT codes are consistent
  • avoid last-minute fixes that create errors and rework

What reforms are being discussed?

There is no consensus. The Business and Trade Committee has urged reform to address growth-discouraging cliff edges. Meanwhile, the Resolution Foundation has argued for a much lower threshold (around £30,000) to reduce distortions and raise revenue.

Others argue the opposite: raise the threshold so that only firms with more scale face compulsory registration (one proposal reported was £115,000).

A realistic outcome may involve reviewing how the cliff edge works, not just the number.

How We Help Small Businesses Navigate VAT

At Apex Accountants & Tax Advisors, we help growing businesses make VAT decisions based on numbers, not fear. Our VAT support typically covers:

  • VAT threshold monitoring and registration planning
  • pricing and margin reviews to reduce VAT shock
  • VAT return compliance and error checks
  • advice on suitable VAT schemes (where eligible)
  • risk reviews around disaggregation and trading structures, aligned with HMRC guidance

If you would like guidance on managing VAT thresholds or reviewing your VAT position, contact Apex Accountants or book a consultation with our team today.

Conclusion

The latest HMRC figures and parliamentary scrutiny suggest the £90,000 threshold still shapes behaviour. For some firms, holding turnover below the line may feel safer in the short term, but it can also limit long-term value. The better approach is to treat VAT as a planned transition, with proper tracking, pricing decisions, and systems that keep compliance tight while growth continues.

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FAQs

1. Do I have to register for VAT the moment my turnover reaches £90,000?

No. You must register when your taxable turnover exceeds £90,000 over any rolling 12-month period. Once the threshold is breached, you normally have 30 days from the end of that month to notify HMRC and complete VAT registration.

2. How can I correctly track the rolling 12-month VAT threshold?

Businesses should review their total taxable sales at the end of every month. Add together turnover for the previous 12 months, not the tax year. Accounting software or spreadsheets can help monitor the threshold and avoid accidental breaches.

3. What happens if my business goes over the VAT threshold accidentally?

If your turnover exceeds £90,000 and you fail to register on time, HMRC may still require registration from the correct effective date. You may have to pay VAT owed on earlier sales and could face late registration penalties.

4. Is voluntary VAT registration ever beneficial for small businesses?

Yes, voluntary VAT registration can be beneficial in some cases. Businesses that incur significant VAT on expenses or mainly serve VAT-registered customers may benefit because they can reclaim input VAT and appear more established to larger clients.

UKDI Fast-Paced Innovation Competition Enters New Phase with Fresh Defence Funding

Posted on by Farazia Gillani

The UKDI fast-paced innovation competition has entered a new phase after the UK Ministry of Defence’s innovation unit, UK Defence Innovation (UKDI), announced fresh funding rounds aimed at accelerating defence and security technology development across the United Kingdom. The programme opened its latest competition phase in early 2026, inviting companies, universities and research organisations to submit proposals that address emerging defence challenges. The initiative operates through rapid funding calls designed to move ideas from concept to testing quickly, supporting technologies that strengthen national security and defence capability.

The competition is administered through the UK Government’s defence innovation framework and aims to encourage collaboration between the private sector, academia and defence agencies. Successful applicants may receive government-backed funding to develop prototypes, conduct feasibility studies and demonstrate practical applications.

Why this matters

Innovation programmes linked to defence spending often influence wider sectors of the economy. Funding competitions from government bodies can create opportunities for technology companies, research institutions and specialist manufacturers.

The new phase of the UKDI fast-paced innovation competition signals continued government investment in emerging technologies, particularly those that can be deployed rapidly. For UK businesses operating in engineering, data science, cybersecurity, robotics and advanced manufacturing, the programme represents a potential source of research funding and commercial partnership.

Key points

  • The UK Defence Innovation unit has launched a new phase of the UKDI fast paced innovation competition.
  • The programme funds rapid development of defence and security technologies.
  • UK companies, research institutions and universities can submit proposals.
  • Projects may receive government funding to test prototypes and new concepts.
  • The scheme supports collaboration between industry and the Ministry of Defence.

What Has Happened

The Ministry of Defence has opened a new round of submissions under the UKDI Fast-Paced Innovation Competition, a programme designed to identify and support innovative technologies that could strengthen UK defence capabilities.

The competition typically operates through short application windows. Proposals are assessed quickly, with selected projects receiving funding to move from concept to demonstration within a relatively short timeframe.

The objective is to reduce the gap between research and operational use, allowing defence agencies to evaluate new solutions more rapidly than traditional procurement processes allow.

Government-backed innovation programmes often focus on emerging areas such as:

  • Artificial intelligence and data analysis
  • Autonomous systems and robotics
  • Advanced sensing technologies
  • Cybersecurity tools
  • Resilient communications infrastructure
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Background and Context

UK defence innovation programmes have expanded over the past decade as governments attempt to accelerate technology development and maintain strategic advantage.

The Ministry of Defence has used a number of mechanisms to support innovation, including the Defence and Security Accelerator (DASA) and other targeted funding competitions. These programmes provide grants or contracts to organisations developing technologies that could support defence operations or national security.

The fast-paced competition model reflects a shift in procurement strategy. Traditional defence procurement often involves lengthy development cycles. Rapid competitions aim to identify promising technologies earlier and test them quickly.

Government innovation funding also supports the UK’s broader industrial strategy. By funding research and development projects, the government encourages collaboration between private companies, universities and defence agencies.

Key Details and Changes

Although competition themes may vary by round, the structure typically includes:

  • Open calls inviting proposals from UK businesses and research organisations
  • Short application windows designed to speed up evaluation
  • Funding for feasibility studies, prototype development or testing
  • Collaboration between technology developers and defence stakeholders

Projects selected through the programme may move forward to further development stages if early testing proves successful.

Who Is Affected

The UKDI fast-paced innovation competition is relevant to several sectors:

  • Technology startups working in defence-related innovation
  • Advanced engineering firms
  • Cybersecurity companies
  • Universities and research laboratories
  • Data analytics and AI developers

Small and medium-sized enterprises often benefit from such competitions because they provide access to funding and defence-sector partnerships that might otherwise be difficult to secure.

However, participation also requires careful planning around intellectual property, compliance with government contracting rules and financial reporting requirements.

Apex Accountants Insight

Government innovation competitions can provide valuable funding and strategic partnerships for technology businesses. Yet they also introduce operational and financial considerations.

Projects supported by public funding may require:

  • Formal project accounting and reporting
  • Grant compliance documentation
  • VAT treatment assessments where funding is linked to deliverables
  • R&D tax relief analysis where applicable

Businesses receiving innovation funding should review how the funding is structured. Some grants may qualify for specific tax treatment, while others could influence eligibility for relief schemes such as R&D tax credits.

Strong financial oversight is essential during innovation projects. Research programmes often involve staged funding and milestone payments, which require careful accounting.

Why This Matters for UK Businesses

Innovation competitions linked to defence spending can influence the wider technology ecosystem.

Potential impacts include:

  • Increased research funding for technology firms
  • New collaboration opportunities between industry and government
  • Faster development cycles for emerging technologies
  • Growth opportunities for defence-related startups

However, businesses must also consider compliance requirements tied to government funding. Financial reporting, grant conditions and intellectual property arrangements can create administrative complexity.

What Businesses Should Do

Companies considering participation in innovation competitions should:

  • Review eligibility requirements before applying
  • Assess financial reporting obligations linked to grant funding
  • Evaluate intellectual property implications of government partnerships
  • Consider tax treatment of funding and development costs
  • Maintain clear project accounting records

Professional financial advice can help businesses manage these obligations effectively.

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How We Can Help

Businesses participating in the UKDI fast-paced innovation competition may face complex financial, tax and reporting requirements. Innovation funding can affect accounting treatment, VAT obligations and eligibility for R&D tax relief.

Apex Accountants & Tax Advisors supports companies involved in research and innovation projects across the UK. Our services include:

  • Accounting support for grant-funded projects
  • R&D tax relief reviews and claims
  • Financial reporting for government-funded programmes
  • VAT treatment of innovation grants
  • Strategic financial planning for technology businesses

Need guidance on innovation funding or R&D tax relief? Contact Apex Accountants today.

Conclusion

The latest phase of the UKDI fast-paced innovation competition highlights the UK government’s continued focus on accelerating defence-related technological development. By providing funding and rapid evaluation processes, the programme encourages collaboration between industry, academia and government.

For businesses operating in advanced technology sectors, the competition may offer opportunities for funding and partnership. Careful financial management and compliance planning remain essential for organisations seeking to benefit from government-backed innovation programmes.

VAT on UK Private School Fees Survives Latest Legal Challenge

Posted on by Maliha Javaid

The Court of Appeal has rejected the latest legal challenge to adding VAT on UK private school fees, confirming that the government acted within its powers under the Finance Act 2025. In a judgement handed down on 27 February 2026 in London, senior judges ruled that applying the standard 20% VAT rate to most independent school tuition fees is lawful.

The claim was brought by parents and faith-based schools who argued that the measure disproportionately affected families seeking religious education and risked forcing smaller schools to close. The court dismissed those arguments, holding that Parliament is entitled to determine tax policy and that there is no legal right to a particular type of education free from taxation.

Why this matters

The decision provides legal certainty for HMRC and the independent education sector. Unless overturned by the Supreme Court or reversed by future legislation, VAT at 20% will continue to apply to private school fees.

For schools and families, the financial impact is immediate. The removal of VAT exemption changes fee structures, cash flow, and compliance obligations for institutions that were previously outside the VAT system.

Key points

  • The Court of Appeal dismissed the challenge on 27 February 2026.
  • The change was introduced under the Finance Act 2025.
  • Most independent school tuition fees are now subject to 20% VAT.
  • The VAT registration threshold remains £90,000 taxable turnover.
  • Further appeal to the Supreme Court is possible.

What has happened

For decades, private education supplied by eligible bodies was treated as VAT-exempt under the Value Added Tax Act 1994. The Finance Act 2025 removed that exemption for most fee-paying independent schools.

The Court of Appeal confirmed that:

  • Tax exemptions are created by statute and can be withdrawn by Parliament.
  • The European Convention on Human Rights does not guarantee tax-advantaged private education.
  • The Government’s policy falls within its fiscal discretion.

This follows an earlier High Court ruling reaching the same conclusion.

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Background and context of private schools VAT case

VAT is charged at the standard rate of 20% unless a supply is exempt or zero-rated. With the exemption removed, tuition fees now fall within the standard rate.

Schools exceeding the £90,000 VAT registration threshold must:

  • Register with HMRC
  • File quarterly VAT returns under Making Tax Digital
  • Account for output VAT on fees
  • Apply partial exemption rules where relevant

VAT registration also allows recovery of input VAT on certain business costs, although this is subject to complex calculations.

Who is affected

The ruling on VAT on private schools affects:

  • Independent day and boarding schools
  • Faith-based and lower-fee schools
  • Parents facing higher gross fees
  • Suppliers connected to education services

Smaller schools operating on narrow margins may face greater strain, particularly where fee increases cannot be fully passed on.

Apex Accountants Insight

The judgement reinforces a central tax principle: VAT treatment is a matter of legislation, not entitlement. Legal challenges to tax policy face a high threshold.

However, the operational impact is significant. Schools newly within the VAT regime must manage:

  • Partial exemption calculations
  • Capital expenditure planning
  • Contractual updates with parents
  • Cash flow implications of quarterly VAT payments

Where implementation has been rushed, compliance risks increase. HMRC penalties can arise from incorrect returns, late registration or errors in tax point treatment.

Why this matters for UK businesses

The consequences extend beyond the education sector.

  • Increased fees may alter enrolment patterns.
  • State schools could experience capacity pressure.
  • Local economies linked to independent schools may see indirect effects.
  • Professional advisers must factor policy risk into long-term planning.

The measure illustrates how fiscal policy can reshape established sectors quickly.

What businesses should do

Independent schools and related organisations should:

  • Confirm VAT registration status.
  • Review fee structures and parent contracts.
  • Conduct a partial exemption assessment.
  • Model cash flow under quarterly VAT reporting.
  • Seek specialist VAT advice where capital projects are involved.

Early action reduces financial and compliance exposure.

How We Help UK Schools 

Apex Accountants & Tax Advisors supports independent schools and charities with:

  • VAT registration and compliance
  • Partial exemption and capital goods scheme advice
  • Contract and invoicing reviews
  • HMRC correspondence and dispute resolution

Our advice is grounded in current UK tax legislation and HMRC guidance. Get expert guidance on private school VAT today. Contact us now to ensure your school or charity stays fully compliant.

Conclusion

The Appeal Court’s decision on adding VAT to UK private school fees confirms that the policy is legally sound. The focus now shifts from litigation to compliance and financial resilience.

Schools must adapt to operating within the VAT system. Careful planning and technical advice will be essential in managing the long-term impact.

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FAQs About VAT on Private Schools

1. When did VAT start applying to private school fees?

VAT at 20% started applying to private school fees from 1 January 2025, following legislative changes in the Finance Act 2025. Prepayments made on or after 29 July 2024 for terms starting on or after this date are also subject to VAT.

2. What VAT rate applies to school fees?

The standard VAT rate of 20% applies to education, boarding, and vocational training services provided by private schools or connected persons.

3. Do all schools have to register?

No, registration is required only where taxable turnover exceeds the £90,000 threshold in any rolling 12-month period monitored by HMRC.

4. Can schools reclaim VAT on costs?

Yes, registered schools can reclaim input VAT on attributable business costs, subject to partial exemption rules where mixed taxable and exempt supplies exist.

5. Can the ruling be appealed?

Yes, the claimants may seek permission to appeal the Court of Appeal’s 27 February 2026 decision to the Supreme Court.

6. Are private schools closing due to VAT?

No widespread closures are confirmed solely due to VAT; historical annual closure rates were around 3%. Government analysis predicts a 12% long-term sector cost reduction through efficiencies and moderated demand, not mass shutdowns.

Yes, a human rights challenge by parents and faith-based schools was dismissed by the Court of Appeal on 27 February 2026, upholding the policy under Finance Act 2025. A Supreme Court appeal remains possible.

8. Can I claim VAT back on private school fees?

No, parents and individuals cannot reclaim VAT paid on private school fees as it forms part of the taxable fee. Schools may recover input VAT on their own costs, subject to partial exemption rules.

Independent Schools Leaving the Teachers’ Pension Scheme: What It Means, Why It’s Happening, and What Schools Can Do Next

Posted on by Rida Ahmed

A growing number of independent schools have chosen to leave the Teachers’ Pension Scheme (TPS). 

Recent reporting, based on a Freedom of Information request, suggests that membership among independent schools fell from 1,066 on 29 July 2024 to 880 by January 2026, a drop of roughly 17%.

That change sits within a wider cost picture. VAT has been added to private school fees from 1 January 2025, with anti-forestalling rules pulling certain advance payments into VAT if they relate to education supplied from that date.

At the same time, several other cost lines have moved in the “wrong direction” for fee-funded education. TPS employer contributions increased from 23.68% to 28.68% from 1 April 2024.
Business rates charitable relief eligibility in England changed from 1 April 2025 for many private schools that are charities.

Employer National Insurance changes were also announced, increasing the rate to 15% from 6 April 2025, with a lower secondary threshold.

Below is a guide to what is happening, the drivers behind it, and the steps schools can take to make decisions that stand up to scrutiny.

What the latest data indicates

The FOI-based reporting shows a clear shift: a noticeable share of independent schools have left TPS since policy confirmation on VAT for fees.

It is also important to separate headline drivers from underlying trends. Sector commentary points to a longer-term pattern linked to pension cost pressure, with newer policy changes adding urgency and accelerating decisions.

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Key policy and cost changes affecting independent schools

ChangeWhat changedEffective dateWhy it matters
TPS employer contributionsEmployer rate moved to 28.68%1 Apr 2024Higher pension cost per teacher
VAT on private school fees20% VAT applied to education and boarding supplied for a charge1 Jan 2025Higher gross fees or lower net income if fees held
VAT anti-forestallingCertain advance payments caught if linked to supply from Jan 2025From 29 Jul 2024Limits “fees in advance” planning
Business rates charitable reliefMany private schools in England no longer eligible1 Apr 2025Material fixed-cost uplift for qualifying sites
Employer National InsuranceRate up to 15% and threshold reduced6 Apr 2025Higher employment cost base

Why schools are leaving TPS

TPS is a defined benefit scheme with strong member value. That value carries a high employer cost. Why schools are leaving TPS often comes down to this pressure. When budgets tighten, pension cost becomes one of the biggest controllable lines for a school.

1) TPS Employer contribution pressure is structural, not short-term

Teachers’ Pensions confirms the employer contribution rate at 28.68% from 1 April 2024.

For schools with a large teaching payroll, even a small percentage change drives a large cash impact. Many bursars and governors will run scenarios that show pension cost growth outpacing fee growth over multiple years.

2) VAT on fees changes price, demand, and cash planning

VAT applies to private school education and boarding supplied for a charge from 1 January 2025.

A key operational point: VAT rules also apply to certain payments made from 29 July 2024 that relate to terms starting from January 2025.

This creates three common responses:

  • Increase fees to pass on VAT fully, risking demand sensitivity.
  • Absorb part of VAT, reducing margins.
  • Redesign fee structures, bursaries, or boarding arrangements, with careful VAT treatment.

Government guidance also flags that some advance fee arrangements may still be within scope, depending on how the prepayment scheme works.

3) Business rates relief and employment taxes compound the squeeze

For many charitable private schools in England, charitable business rates relief eligibility changed from 1 April 2025.

Employer NIC changes add further pressure from 6 April 2025.

Even when each measure feels manageable in isolation, the combined effect can make TPS look like the “largest lever” available.

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Options schools consider before a full TPS exit

Leaving TPS is not the only route. Schools commonly assess a short list of structural options, then consult staff and unions where needed.

Option A: Remain in TPS and reprice fees or redesign budgets

This is simplest from an HR and recruitment perspective. It can be hardest for affordability and enrolment.

Key actions:

  • Build a model for fee increases and bursary changes.
  • Review VAT registration and VAT accounting approach.
  • Tighten payroll forecasting and cash planning.

VAT policy detail is set out in GOV.UK technical guidance.

Option B: Phased withdrawal (existing members stay, new joiners do not)

Teachers’ Pensions describes “phased withdrawal” for independent schools: existing members remain in TPS, while new teaching staff enter an alternative pension arrangement.

This can reduce future cost growth without forcing immediate change for current staff. It also creates two-tier benefits, which can affect recruitment.

Practical issues to plan for:

  • Staff consultation and contract wording.
  • Auto-enrolment compliance for new joiners.
  • Recruitment messaging and total reward strategy.
  • Governance documentation and board minutes.

Option C: Full withdrawal and replacement scheme

This delivers the biggest cost change, plus the biggest employee relations risk.

Schools need to think about:

  • Transition plan for all teaching staff.
  • Alternative pension design and contribution levels.
  • Timing and communications.
  • Risk of staff churn and hiring difficulties.

VAT and pensions: the technical traps that cause problems later

Schools often face issues when decisions are rushed. These are the areas that regularly create future disputes, rework, or HMRC questions.

Common VAT pitfalls to avoid

  • Assuming every advance fee payment avoids VAT: Anti-forestalling rules can apply to certain payments made from 29 July 2024 that relate to supplies from January 2025.
  • Incorrect VAT treatment for mixed supplies: Education and boarding are within scope for VAT under the measure, and connected-party rules can be relevant.
  • Weak evidence files: VAT positions should be supported by invoices, contracts, fee schedules, and clear tax point logic.

Common pension transition pitfalls to avoid

  • Poorly structured consultation timetable.
  • Lack of clarity on who keeps TPS access under phased withdrawal rules.
  • Underestimating recruitment impact for shortage subjects.
  • Failing to align HR, payroll, finance, and communications teams.

How We Help Schools

At Apex Accountants, we support independent schools through tax change, payroll cost pressure, and pension decision planning.

Our work typically covers:

VAT registration and VAT compliance

Budgeting, forecasting, and cashflow modelling

  • Scenario models for fee changes, bursaries, enrolment sensitivity
  • Payroll and employer cost modelling, including NIC change impact

TPS cost reviews and pension transition support

  • Cost analysis for stay vs phased withdrawal vs exit
  • Implementation planning with payroll and HR teams
  • Board reporting packs, decision logs, and risk registers

Governance and compliance support

  • Term-by-term compliance calendar
  • Finance controls, audit trail strengthening, management reporting
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Conclusion

TPS exits within independent schools are rising, with FOI-based reporting pointing to a drop from 1,066 participating schools on 29 July 2024 to 880 by January 2026.

The driver story is broader than one policy. TPS employer contributions increased to 28.68% from 1 April 2024.
VAT on fees took effect from 1 January 2025, with advance payment rules linked to 29 July 2024.
Business rates relief rules changed from 1 April 2025 for many charitable private schools in England, and employer NIC changes followed from 6 April 2025.

If your school is reviewing TPS participation, take a structured approach. Build a cost model, document assumptions, plan consultation properly, and validate the VAT treatment of fees and contracts.

If you want support with modelling, VAT compliance, or pension transition planning, contact Apex Accountants for a focused review.

FAQs 

Does VAT apply to independent school fees now?

VAT at the standard rate applies to private school education and boarding supplied for a charge from 1 January 2025.

Do advance payments avoid VAT?

Not reliably. Government guidance explains that certain payments made from 29 July 2024 relating to education supplied from January 2025 can still be subject to VAT.

What is the current TPS employer contribution rate?

Teachers’ Pensions states the employer contribution rate is 28.68%, effective from 1 April 2024.

What is phased withdrawal?

It is an alternative to leaving TPS. Existing members remain in TPS, while new teaching staff join an alternative pension scheme, subject to the rules and consultation expectations.

When did business rates relief change for private schools in England?

GOV.UK guidance sets out that from 1 April 2025, private schools that are charities in England no longer qualify for charitable business rates relief.

Farmer Wins VAT Penalty Appeal: What The AFRS Rule Change Means For Farms And Rural Businesses

Posted on by Muhammad Asif

A recent First-tier Tribunal decision on a farm VAT penalty appeal has put a spotlight on a problem many smaller businesses recognise. Tax rules change. Yet communication can fall short.

In Julian & Anor v HMRC [2026] UKFTT 159 (TC), the tribunal cancelled a £43,438 late VAT registration penalty issued to a small island farming partnership after finding it was reasonable they did not know a key VAT change had taken effect.

The case matters far beyond farming. It highlights how “reasonable excuse” can apply where a rule change was not communicated in a way an ordinary taxpayer could spot, even when the underlying law was in place.

This guide explains what changed in the Agricultural Flat Rate Scheme (AFRS), what the tribunal decided, and what farms and rural businesses should do now.

What happened in the Julian case?

The farming partnership operated on St Martin’s, Isles of Scilly. They used the AFRS, which lets eligible farmers charge a 4% flat rate addition on qualifying sales instead of registering for VAT in the standard way.

A reform announced at the 2020 Spring Budget took effect from 1 January 2021. It tightened the AFRS eligibility rules and introduced a clearer requirement to leave the scheme and register for VAT once turnover went beyond a set point.

The partnership’s farming turnover exceeded the new £230,000 exit threshold, but they did not notify HMRC. HMRC later issued a late registration penalty of £43,438.

Once HMRC raised the issue, the partnership registered and paid a large VAT bill within a year. The tribunal still had to decide whether the penalty should stand.

Why the tribunal cancelled the penalty

The tribunal accepted that the taxpayers had a reasonable excuse.

A key factor was how the change was communicated. The judge described the AFRS amendment as “very significant” yet effectively “hidden away” in specialist material, with limited publicity aimed at ordinary taxpayers.

That point is important. HMRC penalties for failure to notify can be cancelled where a taxpayer shows a reasonable excuse for the failure, then corrects the position without undue delay once aware.

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What is the Agricultural Flat Rate Scheme?

AFRS is a VAT simplification route for farming businesses that meet the conditions.

Instead of registering for VAT and reclaiming VAT on purchases, an eligible farmer:

  • stays outside standard VAT
  • charges a flat rate addition (commonly shown on invoices) to VAT-registered customers on qualifying supplies
  • keeps that amount, rather than paying it to HMRC

AFRS reduces admin, yet it is not “set and forget”. The eligibility tests matter, and they change.

What changed from 1 January 2021?

HMRC’s VAT Notice confirms the key AFRS thresholds:

  • Entry threshold: farming turnover must be below £150,000 to join
  • Exit threshold: members can stay on the scheme until annual farming turnover goes above £230,000

Once you exceed the exit threshold, you are expected to notify HMRC, leave AFRS, and register for VAT (standard VAT rules then apply).

Key point many farms miss

These AFRS thresholds are separate from the general VAT registration threshold.

For most UK businesses, VAT registration becomes mandatory when taxable turnover exceeds £90,000 in a rolling 12-month period (current figure).

So a farming business might face VAT registration because:

  • it must leave AFRS after passing the £230,000 AFRS exit point, or
  • it exceeds the general £90,000 VAT threshold (depending on supplies and structure), or
  • it expects taxable turnover in the next 30 days to exceed the threshold.

The penalty HMRC used: what it is, and why it stings

Late VAT registration penalties can arise under Schedule 41 Finance Act 2008, which applies where a business fails to notify HMRC of liability to register.

HMRC guidance explains that you can challenge a penalty through:

  • an HMRC review request (normally within 30 days), or
  • an appeal to the tribunal (normally within 30 days of the decision or review conclusion).

In farming, cash flow can be seasonal. A five-figure penalty on top of VAT due can put real strain on working capital, especially where margins stay tight and records are not run through dedicated finance teams.

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Practical lessons from this farm VAT penalty appeal case

1) Track the right turnover figure

AFRS uses turnover from farming activities for the entry and exit tests.

Action steps:

  • maintain monthly turnover summaries
  • separate farming activity turnover from non-farming income in your bookkeeping
  • keep a rolling 12-month view, not just year-end numbers

2) Build a “VAT trigger” checklist

A simple checklist prevents missed thresholds.

Use triggers such as:

  • farming turnover approaching £230,000
  • taxable turnover approaching £90,000
  • new income streams (farm shop, holiday lets, events, diversification)
  • major contract wins, that could push turnover over a limit within 30 days

3) Do not assume a scheme removes all VAT risk

AFRS reduces admin. It does not remove responsibility.

A farm can still become VAT-registered due to:

  • exceeding VAT thresholds
  • selling taxable non-farming supplies
  • structural changes in the business
  • changes in HMRC rules or guidance

4) If you find a missed registration, act fast

The tribunal gave weight to prompt corrective action once the issue came to light in this case reporting.

In real terms:

  • register quickly
  • quantify VAT due with working papers
  • agree a payment plan where needed
  • keep an evidence file showing when you became aware and what you did next

You Might Also Want to Know: Impact of the 182‑Day Let Tax Rule on Welsh Farm Businesses 

5) Appeals need evidence, not frustration

“Reasonable excuse” is fact-specific. It is not automatic.

Evidence that helps:

  • copies of communications received (or not received)
  • records showing you ran the business without specialist support
  • notes of advice sought
  • timeline of discovery and corrective steps
    HMRC’s own guidance sets out appeal routes and time limits, so deadlines matter.

AFRS vs standard VAT: A quick comparison

TopicAFRSStandard VAT registration
Admin levelLowerHigher
VAT on salesFlat rate addition (scheme rules)Charge VAT at correct rate
VAT on purchasesNo input VAT reclaimInput VAT reclaim (subject to rules)
Key eligibilityJoin < £150k, leave > £230k (farming turnover)Must register over £90k taxable turnover
Common riskMissing exit pointRate errors, digital records, penalties

Thresholds and scheme conditions per HMRC guidance.

How We Help Farms Plan VAT 

At Apex Accountants, we support farms, estates, growers, and diversified rural businesses with VAT planning and compliance that fits real operations.

Our VAT support typically covers:

  • AFRS eligibility checks and exit planning
  • VAT registration reviews (threshold monitoring, timing, evidence file)
  • VAT return process set-up, plus MTD-ready bookkeeping workflows
  • Diversification reviews (holiday lets, farm shops, events, contracting)
  • Penalty defence packs, review requests, and tribunal-ready evidence bundles, where appropriate
  • Cash flow modelling for VAT liabilities, plus Time to Pay support where needed

If you want a clear position on whether you should stay on AFRS, leave it, or register for VAT, we can review your figures and map the next steps.

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Conclusion

The Julian tribunal decision is a reminder that VAT penalties are not always the final word. Where a major change was genuinely hard to spot, a reasonable excuse argument can succeed.

Yet the safer route is prevention.

If your farming turnover is climbing toward £230,000, or your wider taxable turnover is nearing £90,000, put monthly checks in place and get advice early.

Contact Apex Accountants today to review your VAT position and keep your business protected.

FAQs About AFRS and VAT

1) What is the AFRS flat rate addition?

It is a scheme-based addition (commonly 4%) charged on qualifying supplies by eligible farmers, kept by the farmer, rather than paid to HMRC.

2) When must I leave AFRS?

HMRC guidance says you can stay on AFRS until your annual farming turnover goes above £230,000.

3) What is the current VAT registration threshold?

HMRC states the registration threshold is more than £90,000 of taxable turnover.

4) What penalty applies for failing to notify VAT registration?

Penalties can be charged under Schedule 41 Finance Act 2008 for failure to notify liability, depending on facts and behaviour.

5) How do I appeal a late VAT registration penalty?

HMRC guidance explains you can request a review or appeal to a tribunal, typically within 30 days of the relevant letter.

6) Does paying the VAT due remove the penalty?

Not automatically. Payment helps, but penalties depend on notification failures and whether a reasonable excuse exists. The Julian case shows a penalty can still be challenged successfully on the facts. 

These are the questions we see most often from farming and diversified rural businesses, based on recurring VAT registration and penalty queries:

7) Do I need to register for VAT once I pass £90,000?

In most cases, yes, when taxable turnover exceeds £90,000 on a rolling 12-month basis, or you expect to exceed it in the next 30 days.

8) I’m on AFRS. Do I still watch the VAT threshold?

Yes. AFRS has its own £230,000 exit test and other conditions, plus general VAT rules can still bite depending on supplies and structure.

9) Can ignorance of a rule change ever be a reasonable excuse?

Rare, yet the Julian decision shows it can happen where the change was poorly publicised and it was objectively reasonable the taxpayer did not know.

10) How long do I have to appeal a VAT penalty?

Normally 30 days, either for review or appeal, depending on the stage.

April 2026 Car Tax Changes: What UK Drivers Need to Know About UK Vehicle Excise Duty

Posted on by Farazia Gillani

From 1 April 2026, many motorists will pay more UK vehicle excise duty (VED). The increase is inflation-linked and applies across several parts of the system, not only the “headline” band for the highest CO₂ cars.

For most people, the change is modest. For buyers of brand-new, high-emission cars, the first-year bill can be eye-watering. And for electric vehicle owners, there is still tax to pay, even if the first-year rate stays low.

Also Read: Van Tax Changes and How they Affect Employer Vehicle Costs

Car Tax Changes on 1 April 2026

AreaWhat changes from 1 April 2026Why it matters
Standard rate (most cars registered after April 2017, years 2+)£195 → £200Small rise for many drivers
Top first-year CO₂ band (new cars over 255 g/km)£5,490 → £5,690Up to £200 extra in year one for top emitters
Expensive Car Supplement (ECS) amount£440 per year (years 2–6)Extra cost on top of standard rate for expensive cars
ECS threshold for zero-emission cars£40,000 → £50,000 (rule takes effect 1 April 2026)Helps many EVs avoid the ECS if priced between £40k–£50k

How VED Works 

For cars first registered on or after 1 April 2017, VED is usually split into two parts:

  1. First-year rate (based on CO₂ emissions)
  2. Standard rate (a flat annual rate from year two onwards)

On top of that, some cars pay the Expensive Car Supplement for five years (years 2–6).

For cars registered between 1 March 2001 and 31 March 2017, VED follows a different CO₂ band table and does not work the same way as the post-2017 system.

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The Big Headline: Higher First-Year Bills For High-Emission New Cars

If you are buying a new petrol or diesel car with very high CO₂ emissions, the first-year “showroom tax” can be the biggest cost shock.

For cars emitting over 255 g/km, the first-year rate rises to £5,690 from 1 April 2026. That is £200 more than the 2025–26 level.

This matters most if you are:

  • Buying a high-performance model
  • Buying a heavy SUV or large engine vehicle with high CO₂
  • Registering a brand-new vehicle close to the April changeover date

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

What About UK Vehicle Excise Duty on Electric Vehicles In 2026?

Electric cars are no longer fully exempt from VED. Under the rules that came in from 1 April 2025, new zero-emission cars pay a £10 first-year rate, and then pay the standard rate afterwards.

From 1 April 2026, that standard rate becomes £200 (up from £195).

There is also a helpful change for many EV buyers: the government is increasing the Expensive Car Supplement threshold for zero-emission cars to £50,000, effective 1 April 2026, for eligible vehicles registered from 1 April 2025 onwards.

Practical takeaway: an EV priced at £45,000 may avoid the ECS once the new threshold applies, while a petrol or diesel car still faces the £40,000 threshold.

VED For Older Cars (Registered 2001 To 2017): Rates Rise Too

If your car was registered between 1 March 2001 and 31 March 2017, your annual VED is still based on CO₂ bands.

Here are the top-end bands for 2026–27:

Band (2001–2017 system)CO₂ emissionsStandard rate from 1 April 2026
L226–255 g/km£760
MOver 255 g/km£790

Planning Tips For Households And Businesses

Small increases add up, especially for fleets. A few sensible checks can protect cash flow.

  • If you are ordering a new car, confirm the official CO₂ figure and expected first-year VED before you sign.
  • If you run a fleet, build the new rates into your 2026–27 budgets and forecasts.
  • If you are considering an EV, check the list price carefully and whether the £50,000 ECS threshold will apply to your licence date.
  • Keep records tidy. For business vehicles, VED is typically treated as a running cost in the accounts, so clean bookkeeping helps your year-end work and reporting.

How We Can Help You Plan For Upcoming Car Tax Changes in UK

At Apex Accountants, we help drivers and businesses understand how motoring costs affect tax, budgeting, and cash flow.

Our support can include:

  • Fleet cost forecasting and budgeting reviews
  • Bookkeeping clean-up for vehicle and mileage records
  • Company structure and cost planning for vehicle-heavy businesses
  • Management reporting so you can track motoring costs month by month
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Conclusion

The April 2026 updates to UK vehicle excise duty are not a single “one-off” change. They raise the standard annual rate, increase first-year charges for the highest CO₂ cars, and adjust how the expensive car rules apply to many EVs.

If you want help modelling the cost impact for your household or fleet, contact Apex Accountants for a practical review and clear next steps.

FAQs About UK Road Tax

1. Is car tax rising for electric vehicles? 

Yes. Since April 2025 EVs lost their tax exemption. A new EV now pays £10 in its first year and then £200 per year. However, EV buyers get a higher luxury threshold: if the car’s list price is under £50,000, the extra £425 tax doesn’t apply.

2. How does the luxury tax change? 

The Expensive Car Supplement (also called luxury car tax) stays at £425 per year, but now only applies above £40k list price for petrol/diesel cars, and above £50k for EVs. This means many £40–£50k EVs bought since April 2025 are now exempt from the extra fee.

3. What about car tax on diesel cars? 

Most diesel models follow the same bands as petrol. However, non-RDE2 compliant diesels still pay one band higher (up to £5,490 in 2025). The 2026 update likely maintains that rule.

4. What about car tax on Older cars (pre-2001)? 

These are taxed by engine size. The 2026 rates (via RPI) are modest: e.g. £220 for 12 months on a small petrol car. For cars from 2001–2017, old CO₂ bands now have even the cleanest cars at £20 (no free road tax any more).

5. How to pay UK road tax & check? 

You can pay or renew online via GOV.UK. Input your reg to see the exact VED due. If unsure, consult a tax professional for advice on company cars or vehicle financing, as these changes can affect tax planning.

6. Why are some people saying “£200 extra”?

That refers to the jump in the top first-year band for new cars over 255 g/km, which rises by £200 (to £5,690).

UK Economy in 2026: Retail Sales Rise, Exports Strengthen and Public Finances Record Surplus

Posted on by Waheed Ahmed

The UK economy in 2026 is stronger than many expected. Retail sales rose sharply in January. Export demand improved. The Government recorded a significant monthly surplus in public finances.

At the same time, unemployment remains elevated in certain regions. Business tax pressures are still present. Growth forecasts remain modest.

So what is really happening? And what should businesses do now?

At Apex Accountants, we look beyond headlines. Below, we break down the facts, explain the drivers, and outline practical actions for UK businesses.

Snapshot: What the latest data shows

Here is a summary of the key figures reported for early 2026:

IndicatorLatest FigureWhat It Means
Retail sales growth (January)+1.8%Strongest monthly rise in over a year
December retail growth+0.4%Shows upward momentum
UK Composite PMI (February)53.9Activity expanding (above 50)
Public sector surplus (January)£30.4bnHighest January surplus on record
Self-assessment receipts£29.4bn£3.6bn higher than previous year
London unemployment rate7.6%Above national average (5.2%)

The numbers show economic momentum in spending and exports. However, the labour market remains under pressure in some areas.

Retail sales rebound: What it means for businesses

Retail volumes rose by 1.8% in January. This is significant. It suggests consumers returned to spending after a cautious end to 2025.

Why spending increased

Several factors contributed:

  • Post-holiday promotions and discounting
  • Slight easing in inflation pressures
  • Wage growth stabilising real income
  • Increased online purchasing

Non-store retail activity performed strongly. Jewellery and discretionary goods saw notable demand.

What this means for business owners

Retail growth can improve cash flow in the short term. However, this does not mean consumer confidence is fully restored.

Businesses should:

  • Monitor sales trends monthly
  • Review stock management carefully
  • Avoid over-expansion based on one strong month
  • Maintain tight cost control

Spending is improving. But it remains selective.

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Exports and private sector growth: A positive signal

The UK composite PMI reading of 53.9 indicates expansion. Any reading above 50 shows growth.

Export orders increased at the fastest pace since 2021. This supports manufacturers and internationally focused businesses.

What is driving export growth?

  • Improved global demand conditions
  • Competitive pricing from sterling movements
  • Services sector resilience

The services sector remains the largest driver of UK economic activity. Hospitality, finance, healthcare and leisure contributed to growth.

Strategic takeaway

If your business trades internationally:

  • Review export pricing structures
  • Consider currency exposure management
  • Assess new market opportunities

Export demand recovery can provide growth opportunities. However, global conditions remain uncertain.

Public finances surplus explained

January recorded a £30.4 billion public sector surplus. This means government receipts exceeded spending for the month.

This was largely due to:

  • Strong self-assessment tax receipts
  • Income tax threshold freezes
  • Lower debt interest payments

Self-assessment receipts reached £29.4 billion. This was significantly higher than the previous year.

Why this matters for taxpayers

A surplus does not mean tax cuts are imminent. In fact:

  • Income tax thresholds remain frozen
  • Fiscal headroom is still tight
  • Government borrowing levels remain historically high

Businesses and individuals should not assume immediate tax relief.

Labour market concerns: A key risk factor

While spending and exports improved, employment data presents challenges.

London’s unemployment rate has risen to 7.6%. Youth unemployment stands significantly higher.

Sectors affected include:

  • Hospitality
  • Retail
  • Entry-level services

This creates a mixed economic environment. Strong spending data does not remove labour market pressures.

Practical actions for business owners

Economic data provides direction. But strategy matters more. Here is what we advise clients at Apex Accountants:

Cash flow first

  • Review cash flow forecasts monthly
  • Build contingency reserves
  • Plan for tax liabilities early

Tax planning

  • Assess self-assessment and corporation tax exposure
  • Use available reliefs properly
  • Review dividend strategy

Cost control

  • Audit fixed costs
  • Renegotiate supplier contracts
  • Monitor payroll growth carefully

Growth decisions

  • Avoid reacting to one month’s data
  • Base expansion on sustainable revenue
  • Stress-test projections

Short-term improvement does not remove long-term risks.

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Sector outlook summary

SectorCurrent OutlookRisk Level
RetailImproving but cautiousMedium
HospitalityDemand rising, labour pressureMedium–High
ManufacturingExport boost positiveMedium
Professional servicesStableLow–Medium
SMEs overallGrowth modestMedium

This environment rewards careful planning. Overconfidence can create problems.

How We Help Businesses in UK

At Apex Accountants, we support businesses through economic shifts with practical financial guidance.

Our services include:

  • Corporation tax planning
  • Self-assessment tax advice
  • VAT compliance and strategy
  • Management reporting
  • Cash flow forecasting
  • Virtual CFO services
  • Business growth strategy
  • Budgeting and forecasting

We focus on clarity, reduce risk, and help you make informed decisions.

Economic data changes every month. Strong financial structure protects your business in both good and challenging periods.

Conclusion

Early 2026 has started with encouraging signals. Retail spending has improved. Export demand has strengthened. Public finances showed a strong January surplus.

However, unemployment pressures remain. Growth forecasts are still modest. Tax burdens remain elevated.

The UK economy is stabilising. It is not booming.

For business owners, the message is clear:

  • Stay disciplined
  • Plan ahead
  • Monitor cash closely
  • Optimise your tax position

Economic momentum can support opportunity. But financial control determines long-term success.

If you would like tailored advice on how current economic conditions affect your business, contact Apex Accountants today and book a consultation.

FAQs About UK Economy in 2026

Based on current UK search trends and client discussions, common questions include:

1. Is the UK economy recovering in 2026?

There are signs of short-term improvement. Retail and exports are stronger. However, growth is expected to remain modest overall.

2. Will taxes increase again?

There are no confirmed new increases at present. However, threshold freezes continue to increase effective tax burdens.

3. Should businesses expand now?

Expansion decisions should be based on cash flow strength and sector-specific performance. Caution remains important.

4. Is inflation still a risk?

Inflation has eased from peak levels. However, cost pressures remain for energy, wages and supply chains.

Rockstar’s “Grand Theft Tax” Row, Explained: What UK Video Games Tax Relief Really Does

Posted on by Farazia Gillani

Rockstar Games’ UK tax position is back in the headlines. A recent report, picked up by The Scotsman and widely repeated across the games press, says Rockstar’s UK studio claimed more than £70 million through the UK’s Video Games Tax Relief (VGTR) in the 2024–25 financial year. The same coverage points to reported UK profits of over £87 million and dividends of around £85 million, which is why the story has sparked a fresh debate about whether the relief still hits its original target. A Labour MP has also criticised the scale of relief being claimed, using the phrase “Grand Theft Tax”, while worker representatives and unions have argued that public support should come with stronger expectations around fairness and workplace rights. Rockstar, for its part, says it has invested heavily in the UK and created a large number of creative-sector jobs.

At Apex Accountants, we see two separate issues getting mixed together:

  • How VGTR (and its replacement, VGEC) works in law
  • Whether the policy outcomes still match what taxpayers expect

This article explains both, so studio owners, finance teams and founders can make informed decisions.

What is VGTR and why does it exist?

VGTR was introduced in 2014 to support the development of video games with cultural value and to encourage production in the UK and Europe. An HMRC-commissioned evaluation describes VGTR as one of the UK’s creative industry tax reliefs, designed to incentivise culturally British or European games and strengthen the sector.

In practice, VGTR reduces corporation tax for qualifying games projects or produces a payable credit for loss-making companies. It has been especially important for smaller studios that need cashflow support while they build and ship a game.

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The key eligibility points (VGTR)

To claim VGTR, HMRC guidance says the game must:

  • Be certified as British by the BFI cultural test
  • Be intended for supply to the public
  • Have started production on or before a stated deadline in the guidance
  • Exclude certain categories, such as gambling and advertising products

The “British values” phrase that appears in some commentary is often a shorthand for the BFI cultural test and certification process, which is the formal route in the law and HMRC guidance.

The policy row: why Rockstar’s claim is controversial

The argument is not that claiming VGTR is illegal. It is about whether it is desirable for a very large studio, owned by a global group, to claim a large share of relief in the same years it reports strong profits and pays substantial dividends.

Several points are driving the debate:

  • Concentration risk: A significant portion of VGTR has been claimed by Rockstar across multiple years, raising questions about the policy balance between inward investment and support for smaller studios.
  • Worker allegations: A UK MP has raised concerns in Parliament after being contacted by constituents who believed they were dismissed for organising at work and said the claims should be scrutinised given the scale of relief.
  • Fairness optics: When headlines highlight large relief claims alongside profits and dividends, the public often reads the relief as “avoiding tax”, even though the mechanism is a relief built into the tax system.

Rockstar’s tax case response has been to emphasise local investment and job creation, stating that it has created substantial UK employment and helped build skills and innovation in the creative sector.

The practical reality: VGTR is changing, and studios must plan for 2026 and beyond

If you develop games in the UK, the bigger operational story is not Rockstar. It is the transition from VGTR to the Video Games Expenditure Credit (VGEC).

VGEC: the new regime replacing VGTR

HMRC guidance confirms:

  • VGEC can be claimed on qualifying expenditure incurred from 1 January 2024
  • The credit is calculated at a headline rate of 34% of qualifying expenditure (subject to the scheme’s rules)
  • Qualifying expenditure is based on UK core costs and is capped through the scheme’s formula

The BFI also explains that expenditure credits are available from 1 January 2024, with new productions moving to the expenditure credits from 1 April 2025, and a full move by 1 April 2027.

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VGTR vs VGEC: what changes in real life

Here are the differences that matter for finance teams.

VGTR (older relief)

  • Relief is linked to the qualifying trade computation and can reduce tax or create a payable credit.
  • It relies on the BFI cultural test and qualifying expenditure rules.
  • It applies to games that meet the scheme conditions and timeline restrictions.

VGEC (new credit)

  • It is a taxable expenditure credit calculated on qualifying spend.
  • HMRC sets a 34% headline rate, but you still need to model the net impact after corporation tax and your company’s position.
  • UK spending rules are central, so your outsourcing and subcontracting profile matters.

This is why two studios can have the same budget and receive very different outcomes.

The compliance risks studios need to manage

Whether you are a five-person indie team or a multi-site studio, most VGTR and VGEC problems come from avoidable process gaps.

Watch out for:

  • Incorrect “core costs” classification (mixing production costs with non-qualifying spend)
  • Weak evidence files for cultural test scoring, interim certification and final certification
  • Project boundary issues if several products or expansions are treated inconsistently
  • Late planning around the transition dates, which can affect relief choice and cashflow
  • Overlaps with R&D claims that are not properly mapped, documented and reconciled

HMRC expects clear, supportable numbers, with a proper trail from bookkeeping to claim schedules.

What grand theft tax means for the UK games sector

The headline row will continue. But for most UK studios, the key takeaway is simpler:

  • The UK still backs game development through tax policy.
  • The mechanism is shifting to VGEC.
  • Better record keeping and earlier modelling will decide who benefits most.

Public pressure may also increase scrutiny, even for fully compliant claims. So your documentation and governance matter more than ever.

How We Can Help You

If you are a UK game developer, publisher or creative studio group, Apex Accountants can support you with:

  • VGTR and VGEC eligibility reviews and project structuring
  • BFI cultural test support and evidence packs
  • Claim preparation and submission support with clear audit trails
  • R&D tax credit reviews where relevant to your development activity
  • Management accounts and forecasting for project cashflow control
  • Bookkeeping and cloud accounting setups built around clean cost coding
  • Payroll and contractor payments support aligned to project reporting
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Conclusion

Rockstar’s tax case has reignited a public argument about the purpose of creative tax support and who should benefit most from it. The political optics are real, and so are the concerns about policy concentration and fairness.

For studios, though, the action point is not the headlines. It is your own compliance and planning.

VGTR and VGEC can be valuable. But the rules are detailed, and the transition timeline is active. HMRC and the BFI guidance is clear on certification, qualifying spend and the move to expenditure credits.

If you want to claim with confidence, start with clean project cost tracking, early modelling and a strong evidence file. That is how you protect cashflow, reduce risk and keep your claim defensible if questions arise.

If you would like support with Video Games Tax Relief or the new expenditure credit, you can contact Apex Accountants today. Our team can review your eligibility, prepare your claim, and guide you through HMRC requirements. Visit our website or get in touch to discuss your project.

FAQs: Video Games Tax Relief and VGEC in the UK

1. How does VGTR work in the UK?

Video Games Tax Relief (VGTR) allows eligible companies to reduce Corporation Tax or receive a payable credit. Relief is based on qualifying core costs, such as designing and testing. Claims can cover up to 80% of costs, with an effective benefit around 20%.

2. Who qualifies for video games tax relief?

A company can qualify if it develops a game intended for public release, passes the BFI cultural test, and is subject to UK Corporation Tax. The company must be responsible for design, production, and testing and cannot claim for advertising or gambling products.

3. What is the BFI cultural test, and how do you pass it?

The BFI cultural test assesses whether a game is “British”. It is points-based, requiring at least 16 out of 31 points across areas such as cultural content, contribution, location, and personnel. Certification is mandatory for both VGTR and VGEC claims.

4. VGTR vs VGEC: which is better?

VGTR offers a deduction or payable credit on profits or losses, while VGEC provides a taxable credit at a headline rate of 34% of qualifying UK expenditure. The better option depends on project timing, cost structure, and whether production began before April 2025.

5. Is VGTR ending, and when?

Yes, VGTR is being phased out. New productions starting after 1 April 2025 must use the Video Games Expenditure Credit. Existing projects can continue claiming VGTR until 31 March 2027, after which all claims will move fully to the new system.

6. Can overseas-owned studios claim UK relief?

Yes, overseas-owned studios can claim UK relief if they operate a UK company subject to Corporation Tax. The company must meet eligibility rules, including passing the cultural test and carrying out qualifying development activity within the UK.

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