Tax simplification: what could the latest proposals mean for you?

The Government’s June 2026 tax update promised simplification, modernisation and greater fairness. Among its announcements were changes and consultations covering VAT, e-invoicing and the tax treatment of company transactions.

Some measures should make life easier for businesses. Others could have much wider implications, particularly for business owners, shareholders and trustees.

A simpler approach to VAT

One welcome change is the planned digitisation of the option to tax process before the end of 2026.

HMRC will introduce new digital channels for submitting option to tax notifications and revocations, replacing existing form-based processes. For businesses and advisers dealing with land and property, this should make future administration quicker and easier.

Until the new system is established, which is anticipated to be live before the end of 2026, businesses should continue to operate as they do currently.

There’s more good news for businesses investing in land and buildings. From Wednesday, 29 July, the Capital Goods Scheme threshold increased from £250,000 to £600,000, excluding VAT.

This means fewer projects will fall within the scheme and require monitoring over its 10-year adjustment period. Existing capital items already within the scheme will continue to follow the previous rules. Likewise, spend that started prior to the date of change will remain within the old threshold.

More VAT changes on the horizon

Several consultations could bring further changes.

The Government is considering a new zero rate of VAT for land sold for the construction of social housing.  The consultation is seeking views on how the current VAT rules work and how a new zero rate would support the delivery of social housing and help to reduce the barriers faced when constructing new homes, by potentially removing some of the complex tax planning that currently takes place.

Other proposals include extending online marketplace VAT rules to UK sellers and making Direct Debit mandatory for VAT payments. The latter could cause practical difficulties for many organisations that closely manage cashflow, in addition the impact on some trusts, where payments need formal approval will need to be considered.

HMRC is also exploring whether businesses should provide additional information from their accounting systems alongside the existing VAT return.

E-invoicing moves closer

Mandatory e-invoicing for VAT invoices is due to arrive in 2029 and refers to the digital exchange of invoice data directly between buyers’ and suppliers’ financial systems. The aim is to reduce manual processing and improve efficiency. 

For some larger organisations this will be familiar territory, but most businesses will need to review their accounting software and internal processes.

It won’t simply be about how invoices are sent and received. Businesses will also need systems that can apply the correct VAT treatment accurately as more of the process becomes automated.

A big change for company transactions?

Potentially the most significant announcement is a consultation on the tax treatment of company distributions and repayments of capital, which could affect transactions such as company purchases of own shares, management buyouts and certain types of demerger. These arrangements are often carried out for genuine commercial reasons – for example, when a shareholder leaves, ownership changes or different parts of a business are separated.

Under the current rules, proceeds received by shareholders can sometimes be subject to Capital Gains Tax rather than Income Tax, which can result in a reduction (and in some cases the elimination) of tax due on corporate transactions. The Government is considering whether parts of this framework should change.

Although the number of taxpayers affected may be relatively small, the tax consequences for individual transactions, which can be very high in value, could be significant.

Discussions between HMRC and professional bodies indicate that the consultation process will not be rushed-through, and so nothing is likely to change imminently. In the meantime, however, businesses contemplating a share buyback, management buyout or demerger should consider how the proposed changes might affect their transaction and plan accordingly.

What happens next?

Many of these proposals are still being developed, so businesses don’t need to make immediate changes across the board.

However, now is a good time to review planned company transactions, consider how future VAT changes could affect your organisation and start preparing for e-invoicing.

Tax simplification may be the aim, but some of the proposals could bring important changes along the way.

Tax Partner Dominic Carter and I have recorded a podcast on this topic where we discuss points in more detail - search for Larking Gowen Insights wherever you get your podcasts, or visit larking-gowen.co.uk/LGI to listen.

If you have any questions, get in touch enquiry@larking-gowen.co.uk

Gillian McGill | Director in our Business Tax Advisory team | Based in Norwich, Norfolk