As previously announced VAT on private school fees will proceed as planned from 1 January 2025. On the duty side, the expected increase in fuel duty has been shelved, as recommended by the Institute in its pre-budget submission.
VAT on private school fees
From 1 January 2025, all education services and vocational training provided by a private school in the UK for a charge will be subject to VAT at the standard rate of 20 percent This will also apply to boarding services provided by private schools. The Government has now published a response to its recent technical consultation on this policy.
To protect pupils with special educational needs that can only be met in a private school, local authorities and devolved Government’s that fund these places will be compensated for the VAT they are charged on those pupils’ fees.
VAT treatment of private hire vehicles
The Government is considering the responses to the consultation on the VAT treatment of private hire vehicle services, and the impact of a recent Court of Appeal judgment and will respond to the consultation in due course.
Fuel duty
The Government is freezing fuel duty and extending the temporary 5p cut for one year, at a cost of £3 billion. This will save the average car driver £59 in 2025/26.
Alcohol duty
The Government recognises the economic and cultural importance of British pubs and is committed to supporting smaller brewers. The Budget therefore reduced duty on qualifying draught products from 1 February 2025, which represent approximately 60 percent of alcoholic drinks sold in pubs, cutting duty on an average strength pint by a penny. However, alcohol duty on non-draught products will increase in line with Retail Price Index (RPI) inflation from the same date. The current temporary wine easement will end as planned on 1 February 2025.
To support small producers, the Government will make the small producer relief more valuable and will also consult on ways to encourage small brewers to retain and expand their access to UK pubs, maximising drinkers’ choice and local economies, including through provisions to enable more ‘guest beers’.
The Government also announced the end of mandatory duty stamps for spirits and will consult with industry to establish how it can better support the delivery of the spirit drinks verification scheme, which allows spirit producers to verify the geographic origin of their products. This will include the Government making an investment of up to £5 million “to support and look to reduce bureaucracy for existing and prospective producers who may wish to join”.
Air passenger duty
To ensure Air Passenger Duty (APD) revenues remain sustainable, all APD rates will increase in 2026/27. This equates to £1 more for those taking domestic flights in economy class, £2 more for those flying to short-haul destinations in economy class, £12 for long-haul destinations, and relatively more for premium economy and business class passengers. The higher rate, which currently applies to larger private jets, will rise by a further 50 percent in 2026/27. From 2027/28 onwards, all rates will be uprated by forecast RPI and rounded to the nearest penny.
The Government is also consulting on extending the scope of the APD higher rate to capture all passengers travelling in private jets already within the APD regime.
Vehicle excise duty
To help drive the transition to electric vehicles (EVs), the Government is strengthening incentives to purchase EVs by widening the differentials in vehicle excise duty (VED) first year rates between EVs and hybrids/internal combustion engine cars.
The Government recognises the disproportionate impact of the current VED expensive car supplement threshold for those purchasing zero emission cars and will consider raising the threshold for zero emission cars only at a future fiscal event, to make it easier to buy electric cars.
Heavy goods vehicle (HGV) VED rates will increase in line with RPI from 1 April 2025 as will the HGV levy.
Smoking duty
The tobacco duty escalator of RPI +2 percent is being retained for the remainder of this Parliament and will increase duty by a further 10 percent on hand-rolling tobacco this year. These changes apply from 6pm on 30 October 2024.
A new vaping products duty will be introduced from 1 October 2026 at a flat rate of £2.20 per 10ml vaping liquid, accompanied by an equivalent further one-off increase in tobacco duty to maintain the financial incentive to switch from tobacco to vaping.
Soft drinks levy
The soft drinks levy will increase so that it maintains the incentive for soft drinks manufacturers to reduce their sugar content. Rates will be announced in the preceding autumn fiscal event.
Both the lower and higher rates of the Levy will increase each year over the next five years to reflect the 27 percent Consumer Price Index (CPI) increase between 2018 and 2024, in addition to an increase in line with the CPI each year from 1 April 2025.
The Government will also review the current sugar thresholds and the exemption for milk-based drinks.
Gaming duty
The gross gaming yield bandings for gaming duty will be frozen from 1 April 2025 until 31 March 2026.
The Government will also consult in 2025 on proposals to bring remote gambling (meaning gambling offered over the internet, telephone, TV and radio) into a single tax, rather than taxing it through a three-tax structure. This will aim to simplify, future-proof and close loopholes in the system.
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