Budget 2025 VAT Reforms: E-Invoicing and New Compliance Rules

On November 28, 2025, the UK Treasury published the Budget 2025, which underlined the key measures and actions required to deliver on the promise of change to support households, public services, and the economy. 

As noted in the document, the UK government is committed to continuing its growth-focused strategy, reducing borrowing, reforming welfare to tackle poverty, protecting and strengthening public services, modernizing the tax system, and taking decisive steps to cut living costs and control inflation, aiming to secure a stronger and fairer economic future.

Key VAT Measures

To close the tax gap, and following the Autumn Budget 2024’s ambitious measures, the UK Treasury announced measures which should generate an additional GBP 2.4 billion in tax revenue in 2029-30, bringing the total extra revenue from tax gap measures to GBP 10 billion. The primary mechanisms ensuring this will target those who attempt to evade or avoid taxes, improve the collection of unpaid taxes, and modernize the tax system.

The UK government will invest in HMRC to modernize the tax system, including the better use of third-party information and new technologies to provide data-driven prompts that prevent errors in tax returns. Therefore, from April 2029, all taxable persons will be required to issue B2B and B2G VAT e-invoices. However, the detailed implementation roadmap will be published at Budget 2026 next year.

Furthemore, as part of efforts to modernize the tax system to meet the needs of the digital age, the government intends to prevent ride-sharing apps from misusing VAT schemes meant for tour operators and to remove GBP 135 customs duty relief on low-value imports to level the playing field for UK businesses amid growing cross-border e-commerce. Therefore, starting January 2, 2026, all private hire vehicle operators (PHVOs) in London and all nationally operating principal PHVOs will pay VAT uniformly. 

The Budget 2025 also included one measure that the government already addressed concerning the rules on cross-border VAT grouping. Notably, on November 26, the HMRC released a policy paper regarding the revised VAT grouping rules relating to ECJs Skandia ruling. The HMRC reversed the application of reverse charge on certain intra-entity services between UK VAT group members and their overseas EU establishments if the EU state had implemented the Skandia decision.

Thus, overseas establishments of UK VAT-grouped entities are treated as part of the UK VAT group regardless of Skandia implementation. Consequently, reverse-charged VAT is no longer due on recharges between these establishments, reflecting a post‑Brexit approach that differs from recent Irish Revenue guidance.

Conclusion

The UK's Budget 2025 reinforces the government's commitment to building a fairer, more efficient, and growth-oriented economic framework. Collectively, the measures proposed aim to support the long-term goals of fiscal sustainability and digital modernization. Nonetheless, the post‑Brexit trend toward adapting tax rules and regulations that differ from those of the EU should not be neglected.

Source: UK Treasury - Budget 2025, UK Treasury - Budget 2025 Policy Costings, VATabout - UK Tax Reforms, VATabout - UK VAT on Private Schools, HMRC, Irish Tax and Customs