HMRC has announced its long-awaited changes to the scope of the Capital Goods Scheme (CGS), effective from 29 July 2026, aimed at reducing administrative burdens for VAT-registered businesses.  
 
The most notable change is an increase in the CGS threshold for land, buildings, and civil engineering works from £250,000 to £600,000 (excluding VAT). As a result, many smaller property acquisitions, refurbishments, and construction projects will no longer fall within the scope of the CGS, removing the need for annual adjustment calculations and ongoing monitoring.  
 
In addition, computers and computer equipment will be removed from the CGS entirely. HMRC considers this category largely redundant, noting that the existing £50,000 threshold is rarely exceeded.  
 
The changes apply only to expenditure incurred on or after 29 July 2026. Existing CGS assets and projects where qualifying expenditure was incurred before that date will continue to be subject to the current rules for the remainder of their adjustment periods. Businesses with current CGS property assets should therefore continue their existing compliance and monitoring processes.

The government’s tax update 2026: simplification, modernisation, and fairness includes several VAT developments aimed at reducing administrative burdens and improving compliance.  
 
Of particular interest is a consultation on introducing a new zero rate of VAT for land intended for social housing. The proposal is designed to remove barriers to development and accelerate the delivery of new social homes. The Government has also launched a consultation on extending online marketplace VAT liability to UK-based sellers. This would build on the existing rules for overseas businesses and is intended to tackle non-compliance while creating a more level playing field between online and high street businesses. Please see the dedicated summaries below for further details. 
 
HMRC has also announced plans to digitise the option to tax process, replacing paper-based notifications and revocations with new online services by the end of 2026. The new system is expected to improve accuracy, reduce processing times, and support bulk submissions, making it easier for businesses and advisers to manage property-related VAT matters.  
 
Looking ahead, HMRC will explore the use of supplementary data from digital VAT accounting systems to improve compliance and the effectiveness of the tax system. In addition, consultations have been launched on mandatory Direct Debit payments for VAT liabilities and measures to combat electronic sales suppression, signalling a continued focus on digitalisation, data-driven compliance and closing the VAT gap.

The government has launched a consultation on the introduction of a new VAT zero rate for the sale of land intended for the construction of social housing, with responses invited until 18 August 2026. The proposal forms part of the government's wider housing strategy and is intended to support the delivery of social housing by removing VAT-related barriers that can delay development.  
 
Under the current rules, social housing developments often rely on the "golden brick" arrangement, whereby a developer must construct a building above foundation level before a zero-rated sale can take place. HMRC recognises that this approach can create additional costs, cashflow pressures, and administrative complexity, as housing providers are often unable to take ownership of land until a relatively late stage in the development process.  
 
The government is therefore considering a new relief that would allow bare land purchased for social housing development to be zero-rated from the outset. This would enable registered social housing providers to acquire land earlier in the development cycle while preserving full VAT recovery, potentially reducing the need for complex transaction structures and accelerating the delivery of new homes.  
 
The consultation seeks views on the practical operation, scope, and safeguards of the proposed relief, including how "social housing" and "registered social housing provider" should be defined. Businesses involved in land transactions, development, and social housing provision may wish to review the proposals carefully, as they could result in a significant change to the VAT treatment of future social housing projects.

The government has launched a consultation on proposals to extend online marketplace (OMP) VAT liability to UK-based sellers, building on the rules introduced in 2021 for overseas sellers. The consultation, which runs until 18 August 2026, seeks views on making online marketplaces responsible for accounting for VAT on sales made by UK businesses through their platforms.  
 
HMRC believes significant VAT non-compliance remains within the online marketplace sector, estimating that tens of thousands of businesses may not be meeting their VAT obligations. The government argues that this creates an unfair competitive advantage over compliant businesses, including those operating on the high street, and may be costing the Exchequer hundreds of millions of pounds each year.  
 
Under the proposal, marketplaces would become responsible for collecting and remitting VAT on a wider range of UK consumer sales, including retail goods and takeaway food ordered through digital platforms. The consultation also considers measures to protect smaller businesses, including a minimum sales threshold or a VAT relief mechanism for businesses operating below the VAT registration threshold. Private individuals selling second-hand goods would remain outside the scope of the rules.  
 
The government states that the reforms are intended to improve VAT compliance, create a more level playing field between online and high street businesses, and raise additional revenue. Any revenue generated from the changes has been earmarked for future improvements to the business rates system supporting high street businesses such as shops, pubs, restaurants, and hotels.

NHS Ayrshire and Arran Health Board vs HMRC [2026] UKUT 258 (TCC)  
 
This Upper Tribunal case concerned the construction of the National Secure Adolescent Inpatient Service (NSAIS), a medium-secure mental health facility for young people. NHS Ayrshire argued that the accommodation wing of the facility qualified for zero-rating as a building intended solely for a "relevant residential purpose" under Group 5, Schedule 8 VATA 1994.  
 
HMRC denied zero-rating on the basis that the accommodation formed part of a hospital or similar institution and was therefore excluded from the relevant residential purpose relief. The First-tier Tribunal agreed with HMRC, and NHS Ayrshire appealed to the Upper Tribunal.  
 
The UT dismissed the appeal. It found that treatment and therapeutic care were provided throughout the facility, including within the bedroom wing, meaning the accommodation could not be separated from the wider hospital function. As a result, the building did not qualify for relief and the construction services remained standard-rated.  
 
The decision highlights the difficulties of obtaining VAT zero-rating for construction of healthcare facilities. The Tribunal adopted a holistic approach to the use of the building, focusing on the overall clinical purpose of the facility rather than the residential nature of any individual section.

St Patrick's International College Ltd & Others vs HMRC [2026] EWCA Civ 852  
 
The Court of Appeal considered whether three private higher education providers were entitled to exempt their educational supplies from VAT. The colleges were not recognised as "eligible bodies" under UK legislation and therefore did not meet the conditions under the VAT education exemption.  
 
The taxpayers argued that the UK's implementation of the education exemption breached the EU principle of fiscal neutrality. They contended that their courses were effectively indistinguishable from those provided by universities and further education institutions whose supplies were exempt from VAT.  
 
The Court allowed the appeals and found that the lower tribunals had erred in law, concluding that equivalent educational services should not be treated differently for VAT purposes simply because the providers were categorised differently under domestic legislation.  
 
This is potentially one of the most significant VAT decisions of the year for the education sector. It may open the door to substantial historic repayment claims by alternative higher education providers, although the longer-term implications may depend on whether HMRC seeks permission to appeal to the Supreme Court.

Align Technology Switzerland GmbH & Align Technology BV vs HMRC [2026] UKUT 256 (TCC)  
 
The Upper Tribunal considered whether Invisalign clear aligners qualified as VAT-exempt supplies of "dental prostheses" under Items 2 and 2A of Group 7, Schedule 9 VATA 1994. The First-tier Tribunal had previously concluded that the aligners were exempt, accepting that they fell within the ordinary meaning of dental prostheses.  
 
HMRC appealed on the basis that aligners do not replace missing or damaged teeth but instead move existing teeth into a desired position. HMRC argued that the statutory exemption should be interpreted narrowly and consistently with the purpose of the exemption in both UK and EU VAT law.  
 
The UT agreed with HMRC and overturned the FTT decision, finding that a dental prosthesis ordinarily involves the replacement of a missing or defective part of the body, whereas Invisalign aligners are orthodontic appliances that alter tooth position rather than replace teeth.  
 
The decision provides important clarification on the scope of healthcare exemptions and reinforces the principle that VAT exemptions should be interpreted strictly. Dental practices, laboratories, and manufacturers involved in orthodontic products should review their VAT treatment in light of the judgment.  

1st Alternative Medical Staffing Ltd vs HMRC [2026] UKUT 248 (TCC)  
 
This case arose from VAT assessments issued in respect of supplies of nurses and care assistants to NHS bodies, hospitals, and care homes. The taxpayer argued that its supplies should be treated as VAT exempt because they were closely connected with the provision of medical care and fell within the healthcare exemption.  
 
The dispute has a lengthy history, including unsuccessful attempts by the taxpayer to rely upon the Nursing Agencies Concession and arguments based on legitimate expectation. The appeal before the Upper Tribunal concerned an application for permission to appeal against the FTT's decision.  
 
Following an oral reconsideration hearing, the Upper Tribunal refused permission to appeal. The Tribunal found that the taxpayer had not identified an arguable error of law in the FTT's reasoning and therefore failed to meet the statutory threshold required for a further appeal.  
 
Although procedurally focused, the decision is another example of the courts' reluctance to extend healthcare exemptions beyond their established scope. It also serves as a reminder that taxpayers seeking to challenge HMRC assessments must identify a genuine point of law rather than simply disagreeing with a tribunal's findings of fact.

The Government has announced it is cutting the VAT on domestic electricity bills. Whilst the VAT cut from 5% to 0% is likely to benefit millions of households in Great Britain, it should also apply to organisations that qualify currently for reduced rate VAT on energy bills, including small non-VAT registered businesses, charities, and residential care homes.  
 
The VAT rate cut is currently scheduled to apply from at least 1 October 2026 to 31 March 2027. Any decision to continue the measure further will be considered as part of a future Budget.  
 
More detail will follow in due course.