Tax Update 2026: What the Latest HMRC Announcements Mean for VAT, Indirect Tax and Customs

The Government has published its Tax Update 2026: Simplification, Modernisation and Fairness, setting out a number of consultations and proposed reforms aimed at modernising the UK’s tax and customs system. Whilst many of the announcements relate to direct taxes, there are several significant developments affecting VAT, customs duty and wider indirect taxes that businesses should be aware of.

Below is our summary of the key proposals.

1. Digitisation of the Option to Tax Process

This is undoubtedly one of the most welcome announcements for property businesses and VAT advisers.

HMRC intends to replace the existing paper-based Option to Tax (OTT) notification process with new digital services before the end of 2026. The new system will cover:

• Option to Tax notifications
• Revocations
• VAT registration cancellations linked to property transactions
• Bulk uploads for advisers acting on multiple properties

The objective is to:

• reduce errors;
• improve processing times;
• eliminate paper forms;
• provide a more secure digital service.

Our view

Anyone involved in commercial property VAT knows that the existing process can often be frustrating. Lost notifications, delayed acknowledgements and difficulties evidencing historic options have all caused unnecessary uncertainty.

Providing the digital system is well designed, this represents a significant improvement and should make property transactions considerably smoother.

2. Consultation on a New VAT Zero Rate for Social Housing Land

One of the more technically significant announcements is a consultation on introducing a new zero rate of VAT for land intended for the construction of social housing across the UK.

Although full details remain subject to consultation, this proposal could fundamentally change the VAT treatment of certain land transactions.

Potential benefits include:

• reducing irrecoverable VAT costs;
• simplifying complex land structures;
• improving cash flow for housing providers;
• supporting delivery of additional social housing.

Our view

This could become one of the biggest property VAT developments for several years.

The current interaction between:

• exempt land transactions;
• options to tax;
• TOGC rules;
• residential zero-rating;
• partial exemption;

can make social housing developments particularly complex.

If drafted correctly, a targeted zero rate could remove considerable complexity.

However, the legislation will need to be carefully designed to avoid creating new boundary issues.

3. Customs Modernisation

The Government has launched a broad call for evidence on the future of the UK’s customs regime. The consultation considers how customs processes should evolve as international trade becomes increasingly digital.

Areas expected to be explored include:

• greater automation;
• digital customs declarations;
• simplified border processes;
• improved data sharing;
• reducing administrative burdens for importers and exporters.

Our view

Businesses trading internationally should pay close attention.

While the consultation does not introduce immediate legislative changes, it is likely to shape UK customs administration for many years.

Any reduction in customs administration has the potential to reduce compliance costs and improve supply chain efficiency.

4. Mandatory Registration for Customs Intermediaries

HMRC has also published proposals introducing mandatory registration for customs intermediaries who submit customs declarations on behalf of traders.

The objective is to improve:

• professional standards;
• consistency;
• accountability;
• confidence in customs declarations.

Our view

This proposal should help improve the quality of customs submissions and reduce errors within the customs system.

For businesses using customs agents, increased regulation should provide additional assurance that declarations are being prepared by appropriately regulated professionals

5. Extending Online Marketplace VAT Liability

The Government has opened consultation on extending the existing Online Marketplace (OMP) VAT liability rules.

Currently, marketplaces already have VAT obligations for many overseas sellers. The consultation considers extending liability to sales made through online marketplaces by UK-based businesses where the goods are already located in the UK.

Why this matters

If implemented, responsibility for accounting for VAT could increasingly shift from individual sellers to the marketplace itself.

This reflects the Government’s continuing strategy of improving VAT collection through platform operators.

Our view

This follows the wider international trend of making digital platforms responsible for VAT compliance.

While this generally improves tax collection, businesses selling through marketplaces should monitor developments carefully as changes could affect invoicing, accounting systems and contractual arrangements.

6. Electronic Sales Suppression

HMRC has also launched a consultation on introducing software standards designed to prevent electronic sales suppression.

Electronic Sales Suppression (ESS) involves software that enables businesses to hide or delete sales before they are recorded for tax purposes.

The proposals seek to:

• establish recognised software standards;
• improve integrity of accounting systems;
• reduce VAT fraud;
• protect compliant businesses from unfair competition.

Our view

The overwhelming majority of businesses already use compliant accounting software.

This proposal is aimed squarely at tackling deliberate VAT evasion rather than creating additional burdens for compliant businesses.

7. Requiring VAT Payments by Direct Debit

The Government is consulting on requiring VAT liabilities to be paid by Direct Debit.

The proposal aims to:

• reduce late payment;
• improve payment certainty;
• simplify collection.

Our view

This proposal is likely to divide opinion.

For many businesses already paying by Direct Debit, little would change.

However, businesses with irregular cash flow may have concerns over reduced flexibility in managing payment dates.

The consultation will determine whether mandatory Direct Debit represents the right balance between improving compliance and maintaining flexibility.

Overall Thoughts

Taken together, the 2026 Tax Update shows a clear direction of travel.

HMRC continues to move towards:

• greater digitisation;
• increased automation;
• simplified administration;
• improved compliance through technology;
• stronger platform-based tax collection.

Not every proposal will become law, and several remain at consultation stage. Nevertheless, the overall strategy is clear: reduce manual processes, improve data quality and make tax administration more digital.

From a VAT perspective, the digitisation of the Option to Tax process is likely to deliver the most immediate practical benefits for businesses and advisers. Meanwhile, the proposed zero rate for land intended for social housing has the potential to become one of the most significant changes to UK property VAT in recent years if enacted.

As always, the detail will be crucial. We will continue to monitor the consultations and provide updates as draft legislation emerges.

If you would like to discuss how any of these proposals could affect your business, or require specialist advice on VAT, property VAT, customs duty or indirect taxes, please contact Deeks VAT Consultancy Ltd.

Source: HMRC – Tax Update 2026: Simplification, Modernisation and Fairness