Autumn Budget 2025: VAT, environmental and other indirect taxes

HMRC updated its position on intra-entity services between UK VAT groups and establishments in EU member states. 

Private hire vehicle operators will be excluded from the tour operators’ margin scheme (TOMS) from 2 January 2026.

VAT relief, previously available to users of the motability scheme to lease luxury cars, has been removed. A new VAT relief has been introduced for business donations to charity.

The government has announced that HMRC will provide a roadmap for improving compliance to close the VAT gap and simplify arrangements for taxpayers. 

Summary

HMRC has updated its policy on intra-entity services between UK VAT grouped entities and establishments in EU member states. HMRC previously set out its revised policy in a number of business briefs, following the CJEU’s judgement in Skandia America Corp. (USA), filial Sverige (C-7/13) (Case C-7/13). This resulted in UK VAT being due under the reverse-charge mechanism on particular intra-entity supplies between the UK and member states that had applied Skandia.  This created an additional UK VAT cost for partly exempt businesses unable to recover the VAT.  

HMRC has announced that from 26 November 2025, the position set out in those briefs is no longer effective. Its revised policy is that an overseas establishment of a business VAT grouped in the UK should be treated as part of that VAT group, even when located in an EU member state that does not operate whole entity VAT grouping.  

This creates an opportunity for businesses that have been accounting for VAT, following HMRC’s previous briefs to review the treatment, and consider whether or not there may be scope to reclaim overpaid VAT, subject to anti-avoidance legislation.

The upper tribunal decided in March 2025 that supplies made by Bolt, through its ride hailing app, are within TOMS. This decision, as it currently stands, means private vehicle operators acting as principal, buying in the services of self-employed drivers, only account for VAT on the margin. The government has now announced it will specifically exclude private hire vehicle operators from the scheme, from 2 January 2026. This legislative change  will mean from this date, VAT will be due on the total fare charged to the customer in these circumstances rather than the margin.

From July 2026, the VAT relief available to users of the motability scheme that allowed disabled persons to pay top-up fees, without incurring VAT to upgrade cars they were leasing through the scheme, has been removed. The insurance premium tax (IPT) exemption will also end, with IPT applying at the standard rate to insurance contracts on the scheme. In contrast to this removal of relief, from 26 November 2025, businesses donating goods to charities for distribution to those in need will benefit from VAT relief.

In terms of the compliance roadmap, the government has indicated that from April 2029 it will require electronic invoicing for all business-to-business and business-to-government supplies and will publish its roadmap for this change in the 2026 Budget. Late payment penalties will also be increased from April 2027, while an investment of £59m in new technology will be made to provide real-time digital prompts for VAT filing software, starting from April 2027, with full delivery expected by April 2029. HMRC will simplify VAT provisions under drink deposit return schemes so that this is managed by the deposit management organisation rather than the manufacturer or importer. The last key announcement is that to ensure timely payment of VAT, more taxpayers will be required to pay VAT liabilities through direct debit. 

Our comment

HMRC’s change in policy, relating to intra-entity supplies into UK VAT groups, represents both an administrative easement for businesses and a VAT saving opportunity for partly-exempt businesses that have suffered an irrecoverable reverse-charge of UK VAT cost following Skandia.

Subject to HMRC successfully challenging the upper tribunal decision, we expect that online platforms such as Bolt and Uber acting as principal in the UK will still be able to benefit from the historic treatment of their supplies in the UK under TOMS. This prospective legislative change will mean VAT is due on the full value of taxi fares, when supplied through ride-hailing platforms.

Changes to VAT relief, provided under the motability scheme, will aim to prioritise essential motability needs over prestige with luxury brands removed from the scheme.  

Charities will be the main beneficiaries of the new VAT relief for business donations, under which donations from businesses will be zero-rated for VAT. This is a welcome change, as it will incentivise businesses to make donations to charitable causes by removing the VAT cost.

The development of electronic invoicing requirements mirrors similar EU legislation being introduced, promoting the use of electronic invoicing to close the tax gap due to avoidance and invoice fraud. The additional investment into new technology for filing VAT returns will be very much welcomed, given the challenges with online submissions currently faced by taxpayers.  The government’s announcement, in relation to requiring more taxpayers to sign up to direct debit for payment of VAT liabilities, should minimise the risk that deadlines are missed. However, forcing timely VAT payments will put an additional unwelcome cashflow burden on many businesses already facing challenges. 

The UK government has confirmed plans to abolish the long-standing £135 de minimis threshold for customs duty on imported goods. This change means all imports, regardless of value, will be subject to customs duty. The measure aims to close a mechanism that may have been exploited by overseas e-commerce platforms and level the playing field for UK retailers.

Summary

The de minimis threshold previously exempted low-value parcels from duty charges.  The reform is designed to address significant tax leakage, estimated at around £600 million annually, and to create a level playing field for UK retailers competing with overseas e-commerce platforms such as Temu and Shein.

Implementation is expected to be phased, with full removal potentially delayed until March 2029 to avoid disruption at the border and allow businesses time to adapt. Similar thresholds are being scrapped in the US and EU.

Early preparation will be key to managing these changes effectively.

Our comment

This reform represents a significant shift in UK customs policy. While it addresses fairness and revenue leakage, businesses should prepare for higher compliance costs, system upgrades for customs declarations and possible consumer backlash over price increases.

The phased timeline offers breathing space, but proactive planning is essential, particularly for e-commerce platforms and logistics operators. This change aligns the UK with global trends, but its success will depend on robust digital customs infrastructure and clear guidance from HMRC.

The Budget includes significant updates on landfill tax, the aggregates levy, plastic packaging tax, fuel duty and motoring taxes, climate change levy, the new UK carbon border adjustment mechanism, soft drinks industry levy, and the replacement of the energy profits levy with a permanent windfall tax. 

Summary

Aggregates levy: Devolution to Scotland

The aggregates levy is to be devolved to Scotland from 1 April 2026. A policy paper has been published alongside the Autumn Budget 2025 announcements. This sets out the details of the secondary legislation to be published to change the territorial scope of the UK regime and introduce measures for cross border movements between Scotland and the rest of the UK. In summary:

• Aggregate moved from a quarry in Scotland to the rest of the UK will be subject to the UK aggregates levy, and the Scottish producer will have to register and account for it
• Aggregate that has been subject to the Scottish aggregates tax, and not relieved, will not be subject to the UK aggregates levy when it is moved elsewhere in the UK
• The definition of UK waters will be amended so that waters adjacent to Scotland are excluded from the UK aggregates levy
• A credit will be introduced for UK produced aggregate that is moved to Scotland or Scottish waters

Landfill tax

The government consulted on reform of landfill tax with proposals to:

Remove the lower rate of landfill tax between 2027 and 2030

• Remove the quarries exemption from April 2027
• Remove water discounts from April 2027
• Remove the qualifying fines regime from April 2027
• Restrict the exemption for dredgings to exclude any material that is mixed with it for stabilisation purposes from April 2027
• Increase the rate of landfill tax charged for unauthorised disposals from April 2027

In the Budget, the Chancellor confirmed the standard rate of landfill tax will increase by RPI. The lower rate of landfill tax will be retained, but will increase by the same cash amount as the increase in the standard rate from 1 April 2026. This will prevent further divergence of the rates.

The Chancellor also confirmed that the quarries exemption will be retained. A multi-agency programme involving DEFRA, the Environment Agency, HMT and HMRC will work with the sector to modernise the regulation of quarries.

The qualifying fines regime is also being retained for now but is subject to review, and HMRC will work with the sector to reform the regime.

Water discounts are to be retained because the government recognises the disproportionate impact that their removal would have on some sectors. There is to be a programme of work with HMRC and affected sectors to consider how the scheme can be reformed to reduce the potential for abuse.

The proposals relating to the dredging exemption are to be implemented in full from April 2027 through legislation.

Land remediation grant

DEFRA is to introduce a new grant for public bodies where the landfill tax makes the cost of land remediation prohibitive.

Plastic packaging tax

Key changes to plastic packaging tax in the Budget are:

• An increase in the rate in line with CPI from 6 April 2026
• Introduction of a mandatory certification scheme for mechanically recycled plastic, which will be consulted on early in 2026
• Introduction of a mass balance approach to attribute chemically recycled plastic, with effect from 1 April 2027 and requiring all chemically recycled plastic to be assured under a certification scheme

Removal of pre-consumer plastic from the definition of recycled content with effect from 1 April 2027

Fuel duty

The 5p cut in fuel duty will be extended to the end of August 2026, and then incremental rises will take place to lift the cut as follows:

• 1p on 1 September 2026
• 2p on 1 December 2026
• 2p on 1 March 2027

The planned 2026/27 inflationary increase in fuel duty has been cancelled.

Vehicle excise duty

Search and rescue vehicles will be exempted from vehicle excise duty from April 2027, following consultation with stakeholders to design and implement the exemption.

The threshold for the expensive car supplement for owners of new electric vehicles will be increased from £40,000 to £50,000 from 1 April 2026.

An additional electric vehicle excise duty (eVED) will be introduced from April 2028, bringing in an extra charge of 3p per mile for full electric vehicles and 1.5p per mile for plug-in hybrids in addition to current VED charges.

Climate change levy (CCL)

The main rates of CCL will increase with RPI from 1 April 2027, as usual, but the liquefied petroleum gas (LPG) rates will remain frozen.

The carbon price support rate also remains frozen at the £18 per tonne cap for 2027/28.

Following consultation, electricity used to produce hydrogen through electrolysis, and natural gas used as a source of CO2 in sodium bicarbonate production will be exempted from CCL with effect from 1 April 2026, subject to parliamentary approval.

Energy profits levy (EPL)

EPL is to be replaced by a new oil and gas price mechanism, a permanent windfall tax, of 35% of revenue above thresholds of $90 per barrel for oil and 90p per therm for gas.

UK carbon border adjustment mechanism

UK CBAM is to be included in the Finance Bill, to be introduced with effect from 1 January 2027. Indirect emissions are excluded from the scope until at least 2029.

The government is also considering the feasibility of including refined oil products in future.

Soft drinks industry levy (SDIL)

As previously announced, the rate of SDIL will be uprated on 1 April 2026 to apply a CPI increase and the “catch-up” increment.

In addition, the system will be reformed from 1 January 2028 to:

• Reduce the threshold from 5g to 4.5g of sugar per 100ml
• Remove the exemptions for milk-based and milk-substitute drinks that have added sugar (excluding milk-based lactose and natural sugars from the source material)

Our comment

The proposed landfill tax changes were significant, and many sectors will be relieved that several of the changes have been either cancelled or delayed, subject to further consultation and work with the sector. If the changes had gone ahead as originally proposed, there would have been very significant costs on construction, house building and quarrying. In the areas where further review or consultation is proposed, it will be extremely important for affected businesses to continue to engage with the process, both individually and through their sector associations.

The plastic packaging tax changes represent good news for many, and the introduction of a new scheme for certification of mechanically recycled plastic will give affected businesses increased confidence in their tax position and reduce distortion of competition by unsubstantiated or fraudulent claims. Removal of pre-consumer plastic from the definition of recycled material will be a blow to some, with UK packaging producers who have invested in recycling technology being amongst the worst affected. Importers of packaging materials or packaged goods will need to obtain details from their suppliers to determine whether the recycled content they are providing in their packaging relates to pre- or post-consumer material.

For UK CBAM, the exclusion of indirect emissions until at least 2029 will help to reduce both the cost and the administrative burden for importers of aluminium, iron and steel, cement, hydrogen and fertilisers.

The Chancellor has announced that from 1 April 2026, remote gaming duty rises while bingo duty will be abolished. From 1 April 2027, a 25% remote betting rate will be introduced within general betting duty (GBD).

Summary

From 1 April 2026, remote gaming duty will increase from 21% to 40%. Bingo duty (10%) will be abolished on the same date, affecting UK‑licensed bingo in venues.

The new 25% remote betting rate will be introduced within GBD, applicable to online bets placed by persons in the UK. Remote bets on UK horseracing remain at 15%, and bets via self‑service betting terminals, pool bets and spread betting are not within the 25% remote rate. Casino gaming duty bands are frozen in 2026–27, with retail price index (RPI) uprating thereafter.

Our comment

The modern gross‑profits bingo duty was implemented in October 2003 as part of a major reform in UK gambling laws. More than 20 years later, further significant reforms are being introduced to catch tax policy up with changing consumer trends.

With bingo duty abolished, the tax burden of hosts of live bingo games will be reduced, but bingo games that are hosted and played remotely will see the tax rates almost double.

This is a significant tax rise which will impact companies operating in the UK gambling market. With consumer trends moving towards online gambling over in-person gambling, this policy is expected to raise £1.1 billion by 2029-30.

The Autumn Budget 2025 confirms that tobacco duty will rise by RPI +2%, from 26 November 2025, with a further one-off increase of £2.20 per 100 cigarettes or per 50g of tobacco from 1 October 2026. Alcohol duty will continue to increase in line with inflation (RPI), a policy introduced earlier this year. These measures aim to maintain real-term values, support public health objectives and secure revenue streams, with tobacco duties forecast to raise £8.1 billion and alcohol duties £13 billion in 2025/26.

Summary

The Chancellor has confirmed that tobacco duty will increase from 6pm on 26 November 2025, in line with September’s RPI plus two percentage points, continuing the government’s escalator policy. In addition, a one-off increase of £2.20 per 100 cigarettes, and per 50g of other tobacco products, will apply from 1 October 2026, coinciding with the introduction of a new vaping products duty. Tobacco duties are expected to generate approximately £8.1 billion in revenue for 2025/26, representing 0.7% of total tax receipts.

Alcohol duty will remain indexed to RPI, a system introduced in February 2025. For 2025/26, receipts are forecast at £13 billion, equating to 1.1% of government revenue. While the government argues this approach balances fiscal needs with health objectives, industry bodies have expressed concern about the impact on hospitality and spirits producers, warning of job losses and reduced investment. 

Our comment

These changes reinforce the government’s commitment to using excise duties as both a revenue source and a public health lever. Businesses in tobacco and alcohol supply chains should prepare for price recalculations, inventory planning and consumer demand shifts.

The phased tobacco duty increases and alignment of alcohol duty with inflation provide predictability, but margins in hospitality and retail will tighten. Strategic pricing and clear communication to customers will be essential to mitigate the impact.