VAT and other indirect taxes changes in 2025

For school terms starting on or after 1 January 2025, private schools must pay VAT on supplies of private education, boarding fees and vocational training. This will impact some payments received before this date.

The current VAT exemption will continue to apply to most closely related services and welfare (if supplied separately). Additionally, nursery classes, higher education, universities and the teaching of English as a foreign language will continue to be exempt. The legislation and HMRC guidance is complex and care needs to be taken by schools to ensure VAT is accounted for correctly. Please read our comprehensive article on VAT and private schools.

The EU has made a major policy change starting on 1 January 2025 that will have an impact on UK and other non-EU suppliers to EU consumers. The place of supply for VAT purposes will change to the place where the consumer resides for virtual events such as cultural, sporting or scientific events and online courses in the EU. At present, such services are generally taxed where the supplier is based.

VAT will be due at the applicable VAT rate in the member state of the recipient, with the option to use the special EU scheme called the One Stop Shop (OSS) to declare VAT for all 27 member states, as opposed to being registered in each relevant member state. There are no registration thresholds.

There is no change in respect of supplies to business customers with VAT being due in the place where the business customer is based, with the customer generally applying a ‘reverse charge’ adjustment.

Possible UK double taxation and no taxation issues

There is currently a risk of double taxation where UK businesses will have a UK supply under UK rules and a supply in the EU. There is a similar risk of no taxation where EU businesses make supplies to UK consumers, where no EU tax will apply and there are no current UK rules to apply VAT. HMRC have been alerted to this situation but there have, to date, been no changes to the UK law.

UK businesses need to urgently consider their position, review price lists and terms and conditions, plus check whether the OSS or a VAT registration is appropriate. Our article on new VAT rules for online entertainment has more information.

Arrangements for moving goods from GB to NI have been complex since Brexit. The Windsor Framework was established to help address these issues. As part of these measures, from 1 January 2025 all medicines will be licensed on a UK-wide basis and authorisations issued by the EU will no longer be valid in Northern Ireland. The Medicines and Healthcare Regulatory Agency (MHRA) will become the sole regulatory authority. There are also new labelling requirements. Read more on the Windsor Framework.

From 31 January 2025, any goods imported from the EU to Great Britain must be covered by a safety and security declaration (also known as ‘entry summary declarations’ or ‘ENS’). There will also be a reduced dataset applicable to those completing entries. This change was originally planned for 1 October 2024 but was deferred.

From 31 March 2025, the full implementation of the ‘Green Lane’ using the UK Internal Market Scheme and new arrangements for parcels using the UK Carrier Scheme will take effect. This will allow a much smoother process for moving goods between Great Britain and Northern Ireland. However, the schemes require registration and compliance. Please see our Windsor Framework article related to post Brexit customs changes for Northern Ireland.

These arrangements were due to be implemented from 1 October 2024 but were deferred to allow more preparation time.

It was announced in the 2024 Budget that there will be a consultation early in 2025 regarding a move towards mandatory e-invoicing in the UK. The changes, when implemented, will mirror a a worldwide trend towards e-invoicing. Any UK changes are likely to be introduced in stages, possibly impacting only certain sectors initially.

In late 2022, the European Commission launched its long-awaited proposals to modernise VAT rules within the EU, collectively known as the ‘VAT in the Digital Age’ package. The final arrangements, now agreed between all member states, will have a significant impact on businesses trading across the EU and UK businesses.

The VIDA proposals consist of three key Pillars; Digital reporting and E-invoicing, the Platform economy and the Single VAT Registration. Under the final agreement, ViDA will be introduced in stages between 2028 to 2030, with a final convergence to the EU e-invoicing standard by 2035. Please see our article on digital VAT in the EU.

Under this proposal related to customs, the STW would provide a gateway between businesses and UK border processes and systems, allowing users to meet their import, export and transit obligations by submitting information just once. The STW was trialled in 2024 and was due to be implemented from 2025 but has been paused.

Following a consultation to ensure a more consistent approach to taxation in this area, a new vaping products duty will be introduced from 1 October 2026. The duty, an excise tax, will be 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. A technical consultation was launched in late 2024 to help prepare for the new tax.

The government announced at the Autumn budget 2024 that it will consult in 2025 on proposals to bring remote gambling over the internet, telephone, TV and radio, into a single tax, rather than the current three-tax structure. This aims to simplify, future-proof and close loopholes in the system.

A UK CBAM will be introduced on 1 January 2027. This will place a carbon price on goods in the aluminium, cement, fertiliser, hydrogen and iron & steel sectors that are at risk of ‘carbon leakage’ when imported to the UK.

Products from the glass and ceramics sectors will not be in scope of the UK CBAM from 2027 as previously proposed. The registration threshold will be set at £50,000, retaining over 99% of imported emissions within the scope of the CBAM, while removing over 80% of otherwise registrable businesses such as micro, small, or medium sized businesses.

This environmental scheme would apply a returnable deposit to certain drinks containers. HMRC has decided to simplify the VAT arrangements so the deposit would not impact VAT through the supply chain. Instead, VAT would be collected by manufacturers and importers only, who would declare VAT on deposits on products less VAT on deposits returned through special arrangements.

Therefore, at present, the plan is for a DRS to apply from October 2027 in England, Scotland, and Northern Ireland, with Wales looking to establish a separate scheme suitable for its needs.

The Supreme Court will hear a HMRC appeal in 2025 against a decision in the Court of Appeal that said NHS public car parking was a non-business activity, under a Special Legal Regime. This is a similar outcome to the position of the courts previously on local authority leisure facilities. HMRC’s long standing position is that Trusts must apply 20% VAT and, therefore, this decision is likely to have significant impacts.

The Supreme Court will consider this high-profile appeal by the taxpayer in 2025. The issue is the recoverability of VAT incurred on professional fees connected to a share sale for fundraising purposes (towards a taxable activity) and could have significant implications for many other organisations who have undertaken similar transactions.

HMRC’s long standing policy, based on an EU case called BLP, is that the VAT is blocked if there is a share sale, whatever the purpose of the funding. However, previous courts, including the Court of Appeal, have seen a VAT recovery as possible based on later caselaw including cases such as SKF and a UK Supreme Court decision in Frank A Smart.

The Court of Appeal decided in favour of HMRC, reversing the previous two judgments, that had considered that there was a right of recovery in the circumstances. Read our article VAT recovery on deal costs – selling shares to fund 'downstream' taxable activity

The Supreme Court will hear this appeal by the taxpayer in this long running dispute related to VAT grouping and the time of supply related to ‘earn out’ fees. Is VAT due on transactions that took place while a company was in a VAT group if the relevant ‘time of supply’ for VAT arises many years after the company left the group?

The FTT applied a precedent case of BJ Rice to allow the taxpayer appeal so VAT was not due, but the Upper Tribunal reversed this. The Court of Appeal agreed with the Upper Tribunal, setting up the Supreme Court case. The result is likely to have significant implications for many businesses.

In 2025, the Court of Appeal will hear an appeal by HMRC in a dispute regarding the VAT liability of giant marshmallows. The Upper Tribunal agreed with the previous decision of the FTT that the products were zero rated and were not ‘confectionary’ after applying a Multi Factorial Approach. There is other litigation in this contentious area of VAT and food liability including an appeal in a case related to flapjacks that is pending the Innovative Bites decision.

The Court of Appeal will hear this taxpayer appeal, after losing the two previous stages. The appeal relates to black box telematics devices that are used in insurance transactions and considers whether these can be separate taxable supplies rather than be seen as part of the insurance. The Upper Tribunal decided that the VAT incurred on the devices was blocked.

The Court of appeal will hear this taxpayer appeal in a dispute related to partial exemption and whether a special Override method proposed by the taxpayer, based on floor area, was reasonable and permitted a greater recovery. The FTT had allowed the taxpayer appeal, but the Upper Tribunal reversed this result, with HMRC prevailing.

Upper Tribunal hearings have taken place on the two leading UK cases on TOMS, Bolt Services and Sonder Europe with HMRC appealing defeats at the FTT in both cases. The decisions of the Upper Tribunal are awaited.

The litigation relates to whether supplies made by the taxpayers fall within the TOMS and so VAT is due just on the margin achieved and not the sale price to the consumer. Bolt supplies on demand passenger transport and Sonder provides short term visitors accommodation.

The outcome of the cases may influence the UK operation of TOMS, where the UK has more freedom now post Brexit and may also impact on a planned response by HMRC to a consultation that has concluded on private hire services where TOMS issues were considered.