HMRC recently published its tax update 2026, focused on simplification, modernisation and fairness. The VAT measures contained in the update are set out below and will have broad application.
Some announcements include links to the relevant consultation, which seeks input from taxpayers and other stakeholders, and some are currently for information only. As expected, there is a continuing focus on digital and data, which should inform the VAT agenda for businesses going forward to ensure their readiness for the changes to come.
1. Supplementary data for VAT returns
HMRC introduced Making Tax Digital for VAT on 1 April 2019, but still only receives very basic information on the VAT return. E-invoicing is due to be mandated from 2029, with Peppol confirmed as the chosen network, but this will not increase the amount of information available to HMRC.
This announcement confirms that HMRC will join the many countries that have already introduced Continuous Transaction Controls (CTC) providing them with detailed information on a transactional level on a real-time or near real-time basis. This allows them to carry out detailed checks more effectively and more quickly to bridge the VAT gap.
There is no timescale for the introduction in the UK, but it will not be before 2030, as e-invoicing is the prerequisite for any CTC system to be in place. As with previous changes, HMRC will be consulting with stakeholders to inform what the system will look like, with the date of the consultation to be announced in due course.
2. E-invoicing: Core interoperability network announcement
The UK’s e-invoicing rollout is still some way in the future, but it’s a welcome development to have the system on which it will be based announced. The Pan-European Public Procurement On-Line (Peppol) system has been widely adopted across the EU and other countries, which will be helpful for businesses required to e-invoice in many different territories due to its having some standardisation.
No further information has been provided in relation to e-invoicing, but organisations should treat the proposed 2029 adoption date seriously and consider what actions to take now which will help as and when further details are released. This includes mapping supply chains to check VAT treatments, reviewing current ERP and accounting systems to understand their capacity and checking on the quality of their master data. Determining who in the business will own the implementation of the project will also be critical to a successful rollout.
3. Requiring payment of VAT and PAYE by Direct Debit
Currently, paying the VAT which is owed on each return by Direct Debit is optional for businesses. In our experience, many haven’t adopted it and instead pay by wire/bank transfer. This is despite there being a three-day extension provided for those who do use direct debit (i.e. so instead of payment due by the 7th of the month, it is made on the 10th.)
The intention behind this consultation is to reduce the value of unpaid tax liabilities. HMRC’s role is, ultimately, to collect tax on behalf of the government, and it has identified that the introduction of mandatory direct debit payments could be a way to do this that maximises collection.
A consultation on this change is currently open and runs to 16 August. It asks some good questions about incentives to take up direct debit, what the unintended consequences could be, and sets out potential benefits that include reduced administrative obligations. If you don’t currently use direct debit, the document should be reviewed, and we are happy to share our insight on any matters you may wish to discuss. Please get in touch with your usual Crowe UK contact.
4. Online marketplace VAT liability
The new consultation looks at whether those rules should be extended to cover sales made by UK-based businesses through online marketplaces, where the goods are in the UK at the point of sale. This could include a wide range of online sales, including retail goods and, potentially, sales made through takeaway food delivery platforms. The policy intent is clear – HMRC considers that VAT non-compliance remains an issue in the online marketplace sector and that the existing rules do not go far enough to ensure a level playing field between compliant businesses, online sellers and traditional high street retailers.
If implemented, it would mean that online marketplaces may have to take on VAT accounting responsibility for a much wider population of sellers than they do currently. For marketplaces, that would create new compliance, systems and data requirements. For sellers, particularly smaller UK businesses, it may change how their sales are priced, invoiced and reported, even where they are not currently VAT registered.
The consultation recognises that the impact on smaller businesses needs careful consideration and asks for views on how the rules could be designed to avoid disproportionate consequences for businesses that are not required to register for VAT.
Businesses selling through online marketplaces should review the consultation and consider whether to respond, particularly where marketplace sales form a material part of their business model.
Further information on the consultation and how to respond is available here.
5. Low Value Imports
The objective of the changes is to address the significant growth in low-value imports and to create fairer competition between UK retailers and overseas sellers shipping goods directly to UK consumers. In practice, the removal of the relief will mean that many low-value goods which can currently enter the UK free of customs duty will become subject to normal customs duty rules.
The details of the new regime are still to be finalised. The previous consultation considered areas such as what customs data should be collected, how the tariff should apply, whether an additional fee should be introduced to fund administration, and whether VAT collection rules should be adjusted to fit the new customs arrangements.
Notably, the EU introduced its own changes on 1 July 2026 with the introduction of a temporary €3 customs levy on import consignments under €135/£150. The levy applies per customs line entry, not per consignment, so a single consignment could see multiple levies applied. Further, permanent changes are planned in 2028. The UK government may decide to follow suit or take a different approach altogether.
Businesses involved in importing, selling, fulfilling or facilitating low-value goods should not wait until 2028 to assess the impact. Key areas to review include product classification, duty rates, customer pricing and contractual responsibility for import formalities.
6. Digitising the option to tax process
Currently, the process for notifying an option to tax requires forms to be completed and sent to HMRC, either by post or email, with only the email route providing the taxpayer with any recognition that the notification has been received by HMRC. The proposals to establish digital channels for notifications and revocations are likely to be broadly welcomed, and although it remains to be seen whether these channels will include any acknowledgement by HMRC of the relevant notification, it would be surprising if HMRC did not consider this as part of the exercise.
What's next?
Businesses should review the proposals and consultations to understand how they could affect their VAT compliance processes in the future. As HMRC’s digital transformation gathers pace, businesses which have a clear understanding of their own VAT-relevant data, its accuracy and completeness, will be better prepared to meet the compliance challenge.
For further information, please get in touch with your usual Crowe UK contact.
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