Autumn Budget 2026: Budget 2026 VAT changes and what businesses need to know

There was no increase in the headline rate of VAT in today’s Budget, but that certainly doesn’t mean it was a quiet Budget for VAT.

Several of the measures announced could have significant practical implications for businesses, affecting everything from cash flow and VAT accounting to pricing and compliance. While some changes remain some way off, businesses affected will need to understand how the new rules could alter the way they operate.

How will the new VAT rules affect businesses selling through online marketplaces?

Perhaps the most significant change is for businesses selling through online marketplaces.

From October 2027, marketplaces will collect VAT on sales made by VAT-registered sellers, as well as UK businesses with £90,000 or more in annual marketplace sales.

This potentially has a very broad reach, from takeaways using delivery platforms to retailers selling through Amazon, eBay and Etsy.

For businesses already VAT registered, however, this is about considerably more than compliance. Currently, the seller generally collects the payment from the customer and accounts for the VAT to HMRC. Under the new rules, the marketplace will collect the VAT instead.

That change could affect cash flow, VAT accounting and reconciliations, particularly for businesses with significant sales through third-party platforms or a mixture of direct and marketplace sales.

There is time to prepare, but affected businesses should consider how dependent they are on marketplace sales and whether their existing accounting systems and processes will be able to accommodate the change.

Does the Budget address the EV charging ‘driveway divide’?

The different VAT treatment of electric vehicle charging remains an important issue.

Public and workplace EV charging continues to be subject to 20% VAT, while domestic electricity currently benefits from the temporary 0% rate.

That leaves what has become known as the ‘driveway divide’. Someone able to charge an EV at home can benefit from a substantially lower VAT rate, while those without off-street parking may have little choice but to use public charging and incur the higher VAT cost.

For individuals and families considering the switch to an EV, particularly those living in towns and cities without access to private parking, this remains an important part of the overall cost calculation.

Could the VAT change make social housing developments more viable?

From April 2027, qualifying land sales to social housing providers will benefit from a new VAT zero rate.

For developers and social housing providers, this has the potential to remove VAT cost from the development chain and improve the economics of delivering affordable housing.

The opportunity, however, will depend heavily on the detail. Businesses involved in land transactions or housing development will need to establish which organisations and transactions qualify and consider whether the change could influence the timing or structure of planned developments.

What do overseas businesses need to consider?

From April 2027, overseas businesses supplying services to non-VAT-registered UK businesses may have to register and account for UK VAT.

While this should create a more level playing field between overseas and UK suppliers, it could also introduce significant UK compliance obligations for overseas businesses that have not previously needed to register here.

There could also be consequences for UK customers if suppliers seek to reflect the additional VAT cost or administrative burden in their pricing. Businesses purchasing services from overseas suppliers should therefore consider whether their existing arrangements could be affected.

What is changing for private-hire operators?

VAT and private hire has been a developing area for several years.

Traditionally, some operators acting as agents accounted for VAT only on their commission rather than the full passenger fare. Operators acting as principal faced VAT on the full fare, although some sought to reduce that cost through the Tour Operators’ Margin Scheme (TOMS).

Following the Government’s move to prevent most private-hire journeys from using TOMS from January 2026, it has now announced a further change. From January 2028, larger operators will be required to account for 20% VAT on the full passenger fare.

For affected operators, the implications go beyond the VAT return. Where VAT becomes payable on the full fare, businesses will need to consider the impact on pricing, margins and the amounts ultimately received by drivers, as well as whether that additional cost can realistically be passed on to passengers.

Will more HMRC compliance officers mean greater scrutiny?

The Budget also provides funding for 670 additional HMRC compliance officers.

Additional resource should, in principle, improve HMRC’s ability to deal with enquiries and compliance work. However, VAT is a highly technical area and additional headcount will only be effective if it is matched by appropriate technical training and experienced supervision.

For businesses, greater HMRC resource could make robust VAT processes and supporting records increasingly important. Errors that may historically have gone unchallenged could attract greater scrutiny as HMRC expands its compliance activity.

Planning ahead

Taken individually, some of these measures may appear relatively targeted. Collectively, however, they point towards a VAT system in which more responsibility is being placed on intermediaries, more transactions are being brought within the UK VAT net and HMRC has greater resource for enforcement.

The absence of a headline VAT rate increase therefore should not give businesses a false sense that little has changed.

For those operating through online platforms, buying services internationally, developing social housing or working in the private-hire sector in particular, the coming months provide an opportunity to understand how the new rules could affect cash flow, systems, pricing and commercial arrangements before they take effect.

Armstrong Watson is hosting a live webinar on Tuesday, 3rd November, at 9.30am. Join us to hear from our specialists in tax, financial services and accounting who will be examining the announcements and their impact.

To register for the webinar please visit register for the Armstrong Watson Budget webinar.