VAT developments to watch for in 2025

Anticipated VAT changes for 2025 signify a pivotal year for tax accounting systems, blending modernisation with increasing complexity. VAT registered organisations should prepare for evolving VAT compliance demands while exploring opportunities for greater efficiency and cost savings through strategic planning. Remaining informed and proactive will be critical to navigating this evolving landscape.

E-invoicing and the future of VAT compliance

The most significant long-term change to UK VAT compliance obligations on the agenda for 2025 was heralded when the government announced its plan to launch a consultation on e-invoicing. Though the timeline and framework remain uncertain, this move is part of a broader global trend towards automation. The goal will be to replicate the benefits similar systems have realised abroad, by improving the accuracy of tax information, increasing efficiency and reducing VAT evasion. 

Further afield, e-invoicing is gathering pace. The EU ‘VAT in the Digital Age’ reforms include a digital reporting requirement for all member states (and Northern Ireland), with similar reforms also expected in Switzerland and further afield.

Hotel La Tour - sell-side VAT recovery

Last year, the Court of Appeal ruled that Hotel La Tour Limited could not recover input VAT on professional fees incurred on the sale of shares in a subsidiary, being sold with the aim of raising money to invest in another hotel. Hotel La Tour has appealed the case to the Supreme Court and if successful, this would represent a significant loss for HMRC, with considerable wider ramifications. Even if HMRC succeeds at the Supreme Court, experience suggests that HMRC policy in this area is too restrictive, suggesting many businesses could be eligible for VAT reclaims. 

EU VAT rules for virtual events harms UK providers

VAT rules for live-streamed events in the EU changed with effect from 1 January 2025, with the VAT liability now based on the consumer’s location rather than that of the supplier. This update aligns the VAT treatment of live events with digital services, ensuring consistency. However, it means that UK live event organisers targeting EU audiences with virtual events should be aware of the potential for double taxation on supplies made under these new rules. 

VAT changes for private schools

From 1 January 2025, UK private schools must apply VAT to educational fees. This change in treatment reflects the new government’s views on the fairness of VAT exemptions for such institutions. However, questions remain about the VAT treatment of other services provided by private schools, such as extracurricular activities and boarding fees. Legal disputes are likely to arise before full clarity is established, leaving schools to navigate uncharted territory in the interim. 

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