The announcements in this area range from changes to VAT groups to a new charitable VAT relief which will commence from April 2026.
VAT groups
The Government has removed the requirement to consider Revenue and Customs Brief 18 (2015): VAT grouping rules and the Skandia judgement when making cross-border transactions between members of a VAT group. According to HMRC, this returns the UK to its previous position of operating ‘unmodified whole-entity VAT grouping’. This measure took effect from 26 November 2025. HMRC has therefore published Revenue and Customs Brief 7 (2025): Revised VAT grouping rules and the Skandia judgment as a result which sets out the updated position in detail.
Under the new ‘whole-entity VAT grouping’ principle, HMRC now considers an overseas branch of a UK VAT group member to be part of the UK VAT group, even if that branch is in a separate VAT group in an EU member state. As a result, such transactions are now disregarded for UK VAT purposes.
Charity tax relief
From 1 April 2026 a new VAT relief will be introduced for business donations of goods to charity for distribution to those in need or use in the delivery of their charitable services. The relief will remove the requirement for businesses to account for VAT on eligible goods that are donated for onward distribution or use in a charity or eligible organisation’s services. Value limits will apply to donated items to safeguard against misuse, with higher limits available for listed goods. More information is available in a policy paper.
Private hire vehicle services
From 2 January 2026 suppliers of private hire vehicle and taxi services will be excluded from the scope of the Tour Operators Margin Scheme, except where these are supplied in conjunction with certain other travel services.
Deposit return schemes (DRS)
In an effort to simplify administration of the DRS, the Government will remove the requirement for individual producers to account for VAT on unreturned deposits. Instead, this will be done by the Deposit Management Organisation.
Land intended for social housing
A consultation is to be launched in early 2026 on the reform of VAT rules to incentivise the development of land intended for social housing.
Landfill tax
From 1 April 2026 the standard rate of landfill tax will increase by RPI inflation and the lower rate will increase by the cash amount of the increase in the standard rate. However, the Government has decided not to proceed with transitioning to a single rate of this tax by 2030 and the exemption for quarries with disposal permits will be retained. This was confirmed in the Government’s consultation response published on Budget day.
Plastic packaging tax (PPT)
To incentivise businesses to use recycled instead of new plastic in packaging, the PPT rate for 2026/27 will increase in line with Consumer Price Index (CPI) inflation. A consultation will also be launched in early 2026 on the introduction of mandatory certification for mechanically recycled plastic packaging for businesses to claim an exemption from the PPT.
Finance Bill 2025/26 also provides for a mass balance approach to be used to attribute chemically recycled plastic for the purposes of the PPT from 1 April 2027. This draft legislation also removes pre-consumer waste as a source of recycled content from the same date.
Soft drinks industry levy (SDIL)
From 1 January 2028 the threshold at which the SDIL applies will be reduced from 5g to 4.5g sugar per 100ml and the exemptions for milk-based and milk substitute drinks with added sugar will be removed.
Open cup beverages, such as those bought in cafes, will remain unaffected. The Government also published a summary of responses to its consultation on these reforms.
From 1 April 2026 the SDIL will also increase in line with CPI inflation plus one fifth of the ‘catch-up’ increment to reflect the 27 percent CPI increase between 2018 and 2024.
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