A worked example
The £900,000 of sales is net of VAT and all standard-rated. "About £40,000 a quarter" is the net payment, which implies about £5,000 a quarter of VAT reclaimed on purchases (about £100,000 a year of standard-rated costs). Quarterly returns, not the annual accounting or flat rate schemes.
| A year | Before the Budget | After the Budget | Difference |
|---|---|---|---|
| VAT on sales: £900,000 × 20% | £180,000.00 | £180,000.00 | |
| VAT reclaimed on purchases | −£20,000.00 | −£20,000.00 | |
| Paid to HMRC | £160,000.00 | £160,000.00 | £0.00 |
| Each quarter | £40,000.00 | £40,000.00 | £0.00 |
Payment dates are unchanged: one calendar month and 7 days after each quarter end.
What changes in how VAT is handled:
- E-invoicing. From 1 April 2029, VAT invoices must be issued and received in a set electronic format. HMRC has published a roadmap and will give the full policy and technical design by April 2028.
- Direct Debit. From April 2029, businesses must have a Direct Debit instruction in place for VAT return liabilities (and, for employers, PAYE). Other payment methods can still be used before a cut-off date; the Direct Debit collects anything unpaid.
- Online marketplaces. From October 2027, marketplaces collect the VAT on sales by UK VAT-registered sellers, and by other UK sellers with more than £90,000 of sales a year on that platform. This does not cover business-to-business sales, second-hand goods or personal sales.
- Services from overseas. From April 2027 the reverse charge applies only to VAT-registered businesses. A registered business like this one accounts for it as before; an overseas supplier must charge UK VAT to UK businesses that are not registered.
When it takes effect
Nothing changes in the rates or thresholds. The reverse charge change starts in April 2027, online marketplace collection in October 2027, and e-invoicing and the Direct Debit requirement in April 2029.
Who it doesn't affect
The Budget left VAT rates and thresholds alone, so no business's VAT bill changes because of it. A business that does not sell through online marketplaces is not touched by the marketplace change.
Where this comes from
- Budget 2026 (HM Treasury), "Keeping the government's tax commitments": no increase to the headline rates of VAT
- Budget 2026: Overview of Tax Legislation and Rates (HMRC), Annex A, VAT: 20% standard, 5% reduced and 0% zero rate for April 2027 to 2028; registration £90,000 and deregistration £88,000 from April 2027
- Budget 2026 OOTLAR, section 1.58: VAT e-invoicing from April 2029; section 1.55: online marketplace liability extended to UK businesses; section 1.59: the reverse charge on services from overseas restricted to VAT-registered businesses from April 2027; section 2.32: Direct Debit for VAT and PAYE return liabilities from April 2029
- Budget 2026 (HM Treasury), "Measures to close the tax gap and modernise the tax system": e-invoicing from 1 April 2029, Direct Debit arrangements, and online marketplace liability from October 2027 for UK sellers with more than £90,000 of sales a year on a platform
- Submit a VAT return (GOV.UK): returns and payments due one calendar month and 7 days after the end of the period
Every figure on this page comes from the Budget documents published on GOV.UK on , and was checked by Lewis Back ACA. Last updated . It is general information, not advice on your own position.