Autumn Budget 2026: VAT and Indirect Tax watchlist

While a change to the 20% standard rate of VAT appears unlikely, the devil will almost certainly be in the detail in the Autumn Budget 2026 from an indirect tax perspective.

The UK’s departure from the EU has (amongst other things…) given successive governments considerably greater flexibility to modify VAT reliefs and zero-rates in Great Britain, as demonstrated by the temporary zero-rating of domestic electricity and the expanded reliefs for energy-saving materials. As a result, businesses should not assume that VAT policy is static simply if the headline rate remains unchanged.

In addition, the indirect tax landscape is increasingly being shaped by broader policy objectives. The government’s industrial strategy, housing agenda, net-zero commitments and focus on tax administration reform all create opportunities for targeted VAT and customs changes.

Alongside potential adjustments to existing VAT reliefs, therefore, businesses should also look out for (and be prepared for) significant developments in international trade taxation – through the introduction of the UK’s Carbon Border Adjustment Mechanism (CBAM) – as well as continued digitisation of the tax system through mandatory e-invoicing and other HMRC modernisation initiatives.

New VAT Relief for Social Housing Land

One of the most significant VAT developments currently under consideration is the introduction of a new VAT zero-rate for land intended for the construction of social housing. The government launched a consultation on this proposal in 2026 as part of its wider objective of increasing housing delivery and reducing barriers to development.

Strong indications from senior policy personnel at HMRC indicate that a Budget announcement confirming implementation is extremely likely – this would, clearly, align closely with broader housing policy objectives. If adopted, the measure could simplify land transaction structures and improve project viability in this area. Businesses involved in the acquisition, development or disposal of land for social housing should therefore watch closely for any Budget announcement or subsequent consultation response.

Domestic Electricity

The government has already announced a temporary reduction in VAT on qualifying domestic electricity supplies in Great Britain from 5% to 0% between 1 October 2026 and 31 March 2027, with the future of the relief to be considered in light of fiscal conditions and wider policy objectives.

Given the scheduled expiry shortly after the Budget, a decision on whether the relief should be extended, modified or allowed to lapse is likely to feature prominently in Budget discussions. Although political support for household energy relief remains strong, the wider and well documented fiscal pressures may lead the Chancellor to consider whether the temporary measure can feasibly remain in place beyond March 2027.

Energy-Saving Materials (ESMs)

The temporary VAT zero-rate applying to the installation of qualifying energy-saving materials, including solar panels, heat pumps and battery storage systems, is also currently scheduled to expire on 31 March 2027. Under existing legislation, supplies would then revert to the 5% reduced rate.

Given the government’s continued commitment to net-zero objectives and energy efficiency improvements, the Budget could provide an opportunity either to extend or make permanent the current zero-rating. But, once again, the Treasury may choose to allow the relief to revert to 5% if fiscal constraints are prioritised over further environmental incentives.

Carbon Border Adjustment Mechanism (CBAM)

The introduction of the UK’s Carbon Border Adjustment Mechanism (CBAM) on 1 January 2027 is likely to be one of the most important indirect tax developments addressed in the Budget. The legislative framework is now largely in place, with further secondary legislation having been published during 2026, but businesses are still awaiting key implementation details, including default emissions values and certain operational guidance.

The Budget is therefore expected to act as a platform for final announcements ahead of commencement. Importers of iron and steel, aluminium, cement, fertiliser and hydrogen products should pay particular attention to developments in this area. Businesses should also consider whether their systems and supply-chain data are capable of supporting the record-keeping and emissions-related requirements that CBAM will introduce.

Customs Simplification

Alongside CBAM, there remains scope for the government to announce measures aimed at simplifying customs administration and reducing friction for UK traders.

While no major customs reform package has yet been announced, the wider HMRC modernisation programme and the increasing focus on supply chain resilience may create an opportunity for measures designed to streamline customs procedures, enhance digital border processes and improve trader access to simplified authorisations.

Such reforms would be consistent with the government’s stated objectives of supporting growth and reducing administrative burdens on business.

Online Marketplaces and VAT Fraud

The government has already consulted on extending online marketplace VAT liability and has continued to emphasise its commitment to reducing the tax gap and tackling non-compliance.

As a result, the Budget may include further measures requiring online marketplaces to assume greater responsibility for VAT collection and compliance, alongside enhanced anti-fraud provisions targeting sales suppression software and other forms of VAT evasion. Such measures are attractive from a policy perspective as they have the potential to increase tax revenues without increasing tax rates.

E-Invoicing – the Future of VAT Administration?

The government has already confirmed that mandatory e-invoicing for VAT invoices will be introduced from April 2029 and has committed to publishing a detailed implementation roadmap at Budget 2026.

Consequently, the Budget is highly expected to provide greater clarity regarding technical standards, implementation phases, business readiness requirements and transition arrangements.

While the UK appears unlikely to adopt a continental-style real-time clearance system in the short term, e-invoicing represents another significant step in HMRC’s broader digital transformation agenda and may ultimately form the foundation for more automated VAT compliance and reporting processes in the future.

Land and property generally 

Given continuing speculation around reforms to the taxation of land and property, and the government’s focus on housing delivery and economic growth, there remains the potential for property-related measures to feature in the Budget.

Even where changes are not directly targeted at VAT, the interaction between VAT and other property taxes can be significant, particularly in areas such as development land, property investment structures, options to tax and transaction costs.

As a result, any new property taxes, incentives or reliefs may require accompanying VAT guidance or legislative clarification to ensure the intended outcomes are achieved and to minimise uncertainty for taxpayers.

The property sector’s strategic importance to both the economy and the Exchequer means it remains an area that businesses and advisers should watch closely ahead of the Budget.