Value Added Tax and indirect taxes

Thresholds

The standard rate of VAT remains at 20%. The Labour Party manifesto committed a Labour government not to increase the rate of VAT. For a table of the main tax rates and allowances, see here.

No changes were announced to the VAT registration threshold, which was increased to £90,000 from April 2024. The deregistration threshold is currently £88,000.

VAT on private school fees

The Autumn Budget confirms that the intention to levy VAT on private school fees, included in the Labour Party manifesto, will come into effect from 30 October 2024 and, as previously announced, will apply VAT on private school fees for terms starting on or after 1 January 2025. Currently, Schedule 9 of the Value Added Tax Act 1994 exempts education provided by eligible bodies, including private schools, from VAT. The legislation will remove this exemption for private schools, subjecting the provision of education, vocational services and related board and lodging services to VAT at the current standard rate of 20%. The legislation does exclude teaching English as a foreign language, provision of nursery education, and higher education courses.

The legislation also includes anti-forestalling measures, applying to pre-payments made from 29 July 2024 for terms beginning on 1 January 2025 or the first day of that term (if later), ensuring that VAT is due on these pre-payments.

The government's policy paper confirms that private schools will not lose their eligible body status for the purposes of the education exemption, and therefore any supply of goods or services closely related to a supply of education or vocational training, other than boarding, will continue to be exempt under the separate exemption at Item 4 of Group 6 of Schedule 9 to the Value Added Tax Act 1994. This may include, for example, catering, transport, school trips and field trips. 

While VAT at the standard rate does not necessarily mean a 20% increase in school fees, the government (perhaps somewhat optimistically) anticipates an average fee increase of around 10%. This is due to schools' ability to reclaim VAT on their inputs, reducing the net impact on fee increases. Nevertheless, the government predicts that this will lead to a reduction of approximately 37,000 pupils in private education, which represents around 6% of the current private school population.

This legislation should come as no surprise, given the extensive press coverage in the UK regarding VAT on private school fees. There is open acknowledgement in the government policy paper that there will be disruption caused by children moving schools, and a negative impact on those families who are struggling to pay private school fees and may have to increase working hours to fund the additional cost. However, the government has concluded that this should not have a significant impact on family formation, stability and breakdown as a result of this policy, given that all children of compulsory school age are entitled to a state-funded school place if they need one. The measure is expected to generate significant revenue for the Exchequer, with projections indicating a gradual increase from £460 million in 2024/2025 to £1,725 million by 2029/2030.

Electronic invoicing

The government has announced that it will publish a consultation in early 2025 to explore electronic invoicing and how it can establish standards, increase the adoption, and support businesses.

The proposed UK CBAM

Alongside the Autumn Budget, the government has published a consultation response on the design of the UK Carbon Border Adjustment Mechanism (CBAM) to be introduced in January 2027, aiming to mitigate carbon leakage and align with its net-zero emissions target.

The CBAM will apply a carbon price on imports of carbon-intensive goods such as aluminium, cement, fertilisers, hydrogen, and iron & steel, with potential future inclusion of glass and ceramics sectors. It's designed to ensure that imported goods face a comparable carbon cost to those produced domestically, promoting fair competition and encouraging global decarbonisation efforts.

To facilitate compliance and reduce administrative burdens, a minimum registration threshold of £50,000 worth of CBAM goods over a 12-month period has been introduced, significantly reducing the number of businesses required to register.

The response document confirms a number of key features of the CBAM, including:

• Liability Calculation: Businesses can use actual emissions data or government-provided default values to calculate their CBAM liability.

• Adjustments for Overseas Carbon Pricing: Imports will be adjusted for any carbon price already paid in the country of origin.

• Quarterly Rate Setting: The CBAM rate will be adjusted quarterly, reflecting the UK ETS market price and domestic carbon pricing mechanisms.

VAT and private hire vehicles

The 2023 Autumn Statement contained the announcement that the government would consult on the VAT treatment of private hire vehicles in early 2024. The decision follows the High Court ruling in Uber Britannia Ltd v Sefton MBC, where Uber successfully sought a declaration that all private hire operators in the UK should be subject to the same rules as Uber on classification of workers and status as principal. This has resulted in a requirement to charge VAT on such services not only for Uber but other operators in the same position.

The Autumn Budget 2024 announced that the government is considering the responses to the recent consultation on the VAT treatment of private hire vehicle services and will respond to the consultation in due course.

Landfill tax rates

As announced at the Spring Budget 2024, the government will introduce legislation in Finance Bill 2024/25 to increase the standard and lower rates of Landfill Tax (LFT) in line with the Retail Price Index (RPI), adjusted to account for high inflation in the period from 2022 to 2024 and rounded up to the nearest 5 pence.

The standard and lower rates of LFT will increase for taxable disposals that take place or which are treated as taking place on or after 1 April 2025 in line with RPI as follows:

• Standard rate: £126.15 from April 2025
• Lower rate: £4.05 from April 2025.

Aggregates levy

The government will increase the Aggregates Levy in line with RPI. The rates from 1 April 2025 will be £2.08 per tonne.