The UK VAT system is undergoing one of its biggest shifts in years. As HMRC continues its push toward full digitisation, stricter compliance standards, and better fraud prevention, businesses can expect notable changes in how VAT returns are prepared, filed, and reviewed in 2025–26.
While the VAT rate hasn’t drastically changed in recent budgets, the administrative, technical, and reporting requirements certainly have. From the expansion of Making Tax Digital (MTD) to e-invoicing discussions, digital audit trails, and stricter VAT registration/ deregistration rules, the landscape is changing rapidly.
This blog summarises the most important updates and provides a practical guide for UK businesses, accountants, and outsourced finance teams.
The VAT registration threshold remains frozen at £90,000, capturing more sole traders, property landlords, and micro-SMEs as inflation and wages push turnover higher.
Key impacts:
Failure to register on time continues to attract:
For service-based SMEs with low expenses (consultants, freelancers, agencies), late registration can be costly.
MTD for VAT is now fully mandatory for all VAT-registered businesses, regardless of turnover.
The VAT registration threshold remains frozen at £90,000, capturing more sole traders, property landlords, and micro-SMEs as inflation and wages push turnover higher.
Requirements include:
Common issues accountants are now dealing with:
MTD penalties are now fully active, including:
Businesses must ensure their accounting systems are fully MTD-compliant — and consistently so.
While not yet mandatory, the UK is seriously evaluating mandatory e-invoicing and e-reporting, similar to EU countries (Italy, France, Poland).
MTD for VAT is now fully mandatory for all VAT-registered businesses, regardless of turnover.
The VAT registration threshold remains frozen at £90,000, capturing more sole traders, property landlords, and micro-SMEs as inflation and wages push turnover higher.
Why it matters:
HMRC wants real-time access to VAT data to:
Although full rollout may begin around 2026–27, businesses should prepare now by:
Companies relying on manual invoicing or desktop accounting software will face disruption.
HMRC has expanded obligations for:
These platforms may be treated as suppliers in certain B2C transactions.
Impact on Businesses:
Microbusinesses selling through platforms must review all VAT settings to avoid double-charging or missed VAT.
Post-Brexit VAT rules continue to evolve.
For goods:
For services:
Different rules apply for:
Businesses offering cross-border services (especially digital services) must ensure correct:
HMRC has significantly increased VAT compliance checks focusing on:
Businesses must maintain:
Poor documentation is a major HMRC trigger.
Businesses are adopting:
Accountants and outsourcing teams should embrace automation to reduce:
The UK VAT landscape is moving quickly toward a fully digital future. While this means more transparency and fewer errors, it also means stricter compliance expectations and higher audit risk.
Businesses and accountants who upgrade systems early, adopt automation, and maintain accurate digital records will not only stay compliant but gain a significant competitive advantage.
