HMRC announces its plans for simplifying VAT and customs administration
Carolyn O’Shea · Posted on: May 21st 2025 · read
In this insight piece, Carolyn O’Shea and Grace Thompson consider HMRC’s plans to simplify tax and customs administration and improve compliance, including the upcoming changes to VAT and customs.
Who should read this article?
- VAT registered organisations with capital goods scheme assets
- Businesses not currently using e-invoicing
- Charities receiving donations of goods from businesses for onward donation or use in their charitable activities
- Businesses donating goods to charities for their onward donation or use in their charitable activities
- Online marketplaces and overseas sellers who make supplies through online marketplaces
- Importers of goods into Great Britain, particularly those who use customs special procedures
What’s changing for VAT?
Capital goods scheme
There have been discussions for some time about how the capital goods scheme (“CGS”) threshold has become out of date due to inflation in the commercial property market.
HMRC is modernising the CGS in the following ways:
- Removing computers from the scheme
- Increasing the capital expenditure value threshold from £250,000 to £600,000, excluding VAT, for land, buildings, and civil engineering work
The use of a land or property CGS asset is monitored for ten years. The input tax originally recovered on the purchase is reviewed each year to determine if the asset is used for a higher or lower proportion of taxable use. If there is an increase in the taxable use of the property, you can recover more input tax. If there is a decrease in the taxable use, input tax is repayable to HMRC.
Increasing the CGS threshold will result in fewer items of capital expenditure on land and property being within the scheme. This will reduce the compliance burden for smaller businesses, removing the requirement of monitoring future taxable use of the asset and completing CGS calculations.
However, increasing the CGS threshold will significantly restrict the input tax recoverable for entities which, after the initial recovery, will start using an asset for a higher proportion of taxable supplies. The change could also affect businesses that are registering for VAT years after the initial purchase.
HMRC has not announced how CGS items already in the scheme and over the £250,000 threshold will be treated. We expect there will be transitional guidance.
E-invoicing consultation
HMRC and the Department for Business and Trade have published a consultation on promoting e-invoicing across UK businesses and the public sector seeking views on the impact that different e-invoicing models would have on UK businesses.
E-invoicing is already starting to be rolled across the EU, and the UK is expected to follow suit.
MHA has developed an e-invoicing navigator tool which you can use for free to find key information about compliance in key EU jurisdictions. You can find information about this here: BTI: E-Invoicing Navigator
Business donations of goods to charity
"HMRC is seeking views on the introduction and design of a VAT relief on goods donated to charities by businesses to give away free of charge or use in the delivery of their services. Zero-rating is currently available for goods which are donated to charities for onward sale, for example in a charity shop."
Relief is not currently available for goods which are given away for free or for use in the charity’s own services. This is because the lack of a paper trail would risk opening a route for illegitimately channelling goods VAT-free to the retail market or to associated individuals. HMRC has invited relevant businesses and charities to share their views on potential options which could expand the scope of the relief whilst protecting the relief from fraudulent use.
You can find information about the consultation and how to get involved here
VAT online marketplaces
VAT compliance on sales of goods from overseas sellers has improved significantly following reforms in 2021, which require online marketplaces to account for VAT on behalf of the overseas seller. However, there are still issues with non-compliance and HMRC intends to explore further options for reform.
What’s changing for customs?
Temporary admission - HMRC’s announcement included details on the various simplifications and improvements it will make to Temporary Admission (“TA”). The improvements cover the following areas:
- Extending and simplifying timing requirements
- Improving user experience and guidance
- Removing specific restrictions on who is eligible to use TA and how certain goods can be used while under TA
Authorisation by declaration
‘Authorisation by declaration’ for special customs procedures, such as inward processing and temporary admission, can now be used up to 10 times in a rolling 12-month period. Previously, this was capped at 3 times in a rolling 12-month period. The increase will enable importers who import goods occasionally to not have to obtain a full authorisation from HMRC. This will particularly benefit those importers who import irregularly where the value of the imports is low (e.g. below £1,000), provided the value is accurate.
Customs digitalisation
HMRC has announced its plans to invest in developing a digitalised system to process electronic trade documents, such as e-invoices and electronic bill of lading. This will help UK importers and exporters to reduce the administrative burden within their supply chains.
Transit improvements
HMRC announced that it will engage with stakeholders to improve and modernise the transit process with engagement on:
- The benefits of introducing transit security accompanying documents, and
- Streamlining simplified processes further by removing the time-out period, introducing more flexible controls, improving the authorisation process, and awarding compliance with facilitations at standard export locations.
Details on the consultation process have not yet been announced.
Why is HMRC introducing these measures?
HMRC is introducing these methods to reduce the administrative burden for businesses. By simplifying VAT schemes and reliefs, HMRC hopes to reduce fraud in the VAT system.
When will these changes come into effect?
HMRC has not announced the date any of these measures will come into effect. MHA will provide further updates as and when they are released.
If you think your business will be affected by any of the above changes, please get in touch. We can discuss how these changes would affect your business and ensure you are fully prepared for them when they are introduced.
