Budget 2026: VAT
The 2026 Budget contained a number of VAT measures that will affect businesses over the coming years. Whilst some changes provide certainty in existing areas, others represent potentially significant reforms that may require businesses to review their VAT position, operating models, contractual arrangements and finance systems.
For many businesses, the most significant developments are likely to be:
- Proposed reforms to the VAT treatment of cross-border services
- A new VAT relief for land sold to registered social housing providers
- Expansion of VAT obligations for online marketplaces
- The introduction of mandatory e-invoicing
- The review of the Tour Operators’ Margin Scheme (TOMS)
Many of the measures remain subject to consultation, draft legislation or further HMRC guidance and should therefore be regarded as announced policy intentions rather than final law.
New VAT Relief for Donated Medicines
A new VAT zero-rate applies to qualifying donated medicines, including certain medicines supplied through approved access programmes.
Sectors most likely to be affected:
- Pharmaceutical manufacturers
- Life sciences businesses
- Medical research organisations
- NHS bodies
- Healthcare charities
- Clinical trial operators
Practical impact
The measure is intended to remove VAT barriers that may otherwise discourage medicine donations and to simplify the VAT treatment of qualifying schemes.
Gravita’s view
Whilst this relief applies to a relatively specialist area of the economy, it should provide welcome certainty for pharmaceutical businesses and charities involved in medicine donation programmes. It also demonstrates the Government’s willingness to use VAT policy to support healthcare outcomes.
Public EV Charging Confirmed at 20% VAT
The Government has confirmed that electricity supplied through public and workplace electric vehicle charging infrastructure will be subject to VAT at the standard rate.
Sectors most likely to be affected:
- EV charging network operators
- Commercial property owners
- Fleet operators
- Vehicle leasing companies
- Retail and hospitality businesses providing charging facilities
- Charities and partially exempt organisations
Practical impact
Fully taxable businesses should generally continue to recover VAT incurred on charging costs. However, organisations with restricted VAT recovery may experience increased costs.
Gravita’s view
The announcement provides certainty rather than introducing a major new VAT burden. The greatest impact is likely to be felt by organisations that cannot fully recover input VAT, including charities, healthcare providers and financial services businesses.
Proposed Cross-Border Services Reverse Charge Reform
The Government has announced its intention to restrict the reverse charge mechanism to VAT-registered UK businesses.
Sectors most likely to be affected:
- Charities
- Not-for-profit organisations
- Universities and educational institutions
- Small businesses trading below the VAT registration threshold
- Technology businesses purchasing overseas software
- Professional services firms
- Overseas suppliers of services to UK customers
Practical impact
Where implemented, overseas suppliers may be required to register and account for UK VAT when providing services to UK customers that are not VAT registered.
Potentially affected services include:
- Software and SaaS subscriptions
- Consultancy services
- Marketing services
- Recruitment services
- Legal services
- Professional advisory services
Gravita’s view
This is potentially one of the most significant VAT announcements within the Budget.
Organisations that currently maintain a VAT registration solely because they purchase services from overseas suppliers may wish to reassess their VAT position once draft legislation becomes available.
Similarly, overseas suppliers may face significantly increased UK compliance obligations.
New VAT Relief for Land Sold to Registered Social Housing Providers
A new VAT zero-rate is proposed for qualifying land sold to registered providers of social housing.
Sectors most likely to be affected:
- Property developers
- Housebuilders
- Housing associations
- Registered social housing providers
- Local authorities
- Landowners
Practical impact
The proposal is intended to reduce VAT costs associated with affordable housing developments and could improve project viability across the sector.
Gravita’s view
Property transactions often involve substantial values, meaning even relatively small VAT savings can materially affect project economics.
This measure is likely to be of particular interest to developers delivering affordable housing schemes and mixed-use developments with social housing elements.
Energy Saving Materials
The temporary zero-rate for qualifying energy-saving materials will end and a reduced rate of 5% will apply. Heat batteries will also be added to the list of qualifying technologies.
Sectors most likely to be affected:
- Renewable energy installers
- Construction businesses
- Housebuilders
- Housing associations
- Property management companies
- Manufacturers and suppliers of energy-saving technologies
Practical impact
Whilst VAT costs will increase compared with the current temporary zero-rate position, qualifying installations will continue to benefit from favourable VAT treatment when compared to the standard rate.
Gravita’s view
The inclusion of heat batteries is a notable development and reflects continued government support for renewable technology and energy efficiency measures.
Businesses operating in the renewables and residential construction sectors should review how the revised reliefs affect pricing and project modelling.
Healthcare Staffing Arrangements
The Government intends to legislate following recent court decisions affecting the VAT treatment of certain healthcare staffing arrangements.
Sectors most likely to be affected:
- NHS trusts
- Private hospitals
- Medical staffing agencies
- Care providers
- Dental groups
- GP practices
Practical impact
Detailed legislation is awaited. However, healthcare providers should assess whether existing staffing models may be affected once the final proposals are published.
Gravita’s view
Healthcare organisations frequently have restricted VAT recovery. Consequently, changes affecting exemption boundaries can have a direct impact on operating costs and profitability.
Businesses in the sector should review the legislation carefully once further details become available.
Domestic Electricity Relief Extended
The temporary zero-rate for domestic electricity has been extended until 1st July 2027.
Sectors most likely to be affected:
- Domestic energy suppliers
- Residential housing providers
- Social housing organisations
- Consumer-focused businesses
Practical impact
The extension provides continued support to domestic consumers during a period of elevated energy costs.
Gravita’s view
While largely consumer-focused, the measure provides certainty for energy suppliers and housing providers. The Government’s long-term approach to VAT on domestic energy remains unclear.
Expansion of Online Marketplace VAT Rules
The Government intends to expand VAT obligations for online marketplaces.
Sectors most likely to be affected:
- E-commerce retailers
- Marketplace operators
- Consumer goods businesses
- SME online sellers
- Importers using online platforms
Practical impact
The reforms are intended to improve VAT compliance and simplify VAT collection through digital platforms.
Gravita’s view
Businesses selling through platforms such as Amazon, eBay, Etsy and similar marketplaces should monitor developments closely.
Whilst additional compliance responsibilities may move towards marketplaces, businesses will still need to understand when they remain liable for VAT reporting and payment obligations.
Private Hire and Ride-Hailing Operators
The Government intends to require larger private hire operators to account for VAT on the full value of fares.
Sectors most likely to be affected:
- Taxi operators
- Ride-hailing platforms
- Passenger transport businesses
- Fleet operators
- Mobility providers
Practical impact
Businesses may need to reassess:
- Pricing models
- Contractual arrangements
- Profitability forecasts
- Commercial agreements
Gravita’s view
The measure seeks to provide greater consistency across the sector but may increase VAT costs for some operators. Businesses should begin assessing the potential pricing impact well in advance of implementation.
Mandatory E-Invoicing
The Government intends to introduce mandatory electronic invoicing from April 2029 following publication of detailed guidance during 2028.
Sectors most likely to be affected
- Large corporates
- Mid-market businesses
- Manufacturing groups
- Retailers
- International businesses
- Shared service centres
Practical impact
Businesses may need to invest in:
- ERP system enhancements
- Finance system upgrades
- Invoice automation tools
- VAT technology solutions
- Digital compliance processes
Gravita’s view
For many organisations, this is likely to become one of the most significant VAT compliance developments of the decade.
Businesses with complex finance systems should begin considering readiness planning at an early stage, particularly where multiple systems, territories or shared service centres are involved.
Direct Debit Requirements for VAT Payments
The Government intends to require businesses to maintain a Direct Debit instruction for VAT liabilities.
Sectors most likely to be affected
- Large corporate groups
- International businesses
- Organisations with central treasury functions
- Businesses currently relying on manual payment processes
Practical impact
Most businesses should be able to accommodate the requirement without significant disruption, although treasury procedures may need to be updated.
Gravita’s view
Whilst largely administrative in nature, groups with complex payment approval processes should consider whether changes to internal controls and authorisation procedures may be required.
Similar Insights
Budget 2026: Personal tax
Budget 2026: Inheritance Tax
Budget 2026: Stamp Duty Land Tax and Stamp Duty
Sign up to Gravita's latest updates and newsletters
Stay up-to-date with our event invites, latest news and updates, straight from Gravita's experts.