The Budget 2026: What your business needs to know about the VAT measures announced

The Government has announced a number of VAT changes that could affect businesses operating in the property, social housing and digital marketplace sectors. While some details are still to be confirmed, the measures are intended to simplify VAT administration, reduce complexity and improve compliance.

VAT zero rating of land intended for social housing

Budget 2026 confirmed a new zero rate of VAT for qualifying sales of land to registered providers of social housing, intended to take effect from 1 April 2027. The change should reduce the need for complex transaction structures and allow land to change hands earlier.

The current rules can create VAT costs for either party. An exempt land sale can restrict the seller’s recovery of VAT on related costs. Where the seller has opted to tax the land, chosen to charge VAT on an otherwise exempt sale, the housing provider may be unable to recover that VAT.

The current rules can create VAT costs for either party. An exempt land sale can restrict the seller’s recovery of VAT on related costs. Where the seller has opted to tax the land, chosen to charge VAT on an otherwise exempt sale, the housing provider may be unable to recover that VAT.

The new relief should allow qualifying land sales to be zero-rated without waiting for construction to reach the golden brick stage. Earlier ownership could give housing providers greater control over projects and earlier access to funding, while reducing contractual complexity.

It cannot be assumed that the relief will cover every transaction involving affordable housing as the conditions for zero-rating have not yet been released. HMRC is expected to issue guidance in the near future.

Overseas services: changing who accounts for UK VAT

The government intends to change the VAT treatment of some services supplied by overseas businesses to UK business customers.

From 1 April 2027, if an overseas business supplies services to UK businesses that are not registered for VAT, and that supply of services is deemed to take place in the UK, the overseas supplier must register and charge UK VAT.

Where the UK customer is VAT registered, the existing reverse-charge treatment will continue for relevant services. Under the reverse charge, the customer accounts for VAT on its VAT return instead of the overseas supplier charging it.

The change therefore makes the customer’s VAT registration status central to deciding who accounts for the tax.

Currently there is no guidance available on registration thresholds, exceptions, special registration procedures or transitional arrangements, but these are expected in due course.

Online marketplaces: accounting for UK sellers’ VAT

Online marketplaces already account for VAT on certain sales by overseas sellers.

From October 2027, the government intends to extend this responsibility to qualifying sales by UK businesses. This means the marketplace, rather than the seller, will collect and account for VAT on consumer sales of goods located in the UK at the point of sale.

The extension will cover UK VAT-registered sellers and businesses with annual sales of more than £90,000 on an individual marketplace. This platform threshold applies separately to each marketplace, but it does not replace the seller’s normal VAT registration obligations, which must still be considered across the business.

Personal, non-business sales, second-hand goods and business-to-business transactions are excluded.

The aim is to tackle unpaid VAT, including cases where overseas sellers wrongly present themselves as UK-established businesses. This is a change in who accounts for VAT, not simply a requirement for platforms to report sellers’ income.

HMRC will publish detailed guidance before implementation.

Talk to our VAT specialists

The full impact of these measures will depend on the legislation and guidance published over the coming months. If you would like to discuss how the proposed changes could affect your business, or would like support reviewing your VAT position ahead of implementation, please get in touch with a member of PEM’s VAT team. We can help you understand the implications, identify opportunities and ensure your business is prepared for the changes ahead.

Budget 2026: FAQs for VAT measures

The proposed zero-rating of qualifying land sales for social housing and the changes to overseas services are intended to take effect from 1 April 2027. The online marketplace reforms are expected to take effect from October 2027.

Not necessarily. The government has announced the measure, but the detailed conditions for zero-rating have not yet been published. Until HMRC releases further guidance, it is unclear which transactions will qualify.

The changes will primarily affect UK businesses that purchase services from overseas suppliers and are not VAT registered. In these cases, the overseas supplier may need to register for UK VAT and charge VAT directly. VAT-registered businesses should generally continue to account for VAT under the reverse-charge mechanism.

For qualifying sales, online marketplaces will become responsible for collecting and accounting for VAT on behalf of sellers. This does not remove a business’s own VAT obligations, and businesses will still need to consider whether they meet UK VAT registration requirements.