VAT Is Changing — and You Probably Haven’t Noticed

Quiet updates to complex rules. Here’s what matters before it bites you.

VAT rarely grabs headlines. It’s complicated, dry, and most small business owners avoid thinking about it until the return is due.

But HMRC has a habit of sneaking in changes — and 2025 is no different.

They sound small. They aren’t. If you miss them, it’s your margins that suffer.

Let’s Start with Capital Assets

Under the Capital Goods Scheme, if you buy an asset worth over £50,000+ VAT (like commercial property), you have to adjust the VAT claimed based on how you use the asset over time.

That’s been the rule for years. But in 2025, HMRC is tweaking the rules.

Key change:
Expensive IT equipment (think servers and data centre kit) will no longer fall under this scheme — meaning less administrative burden. But don’t get too comfortable.

The adjustment thresholds for land and buildings are being raised from £250,000 to £600,000. That might sound generous, but it’s really about HMRC cleaning up fringe cases where assets were too big for simple treatment but too small to warrant full-blown analysis.

Why This Matters for You

If you’re:

• A property developer doing partial VAT recovery
• A charity refurbishing a building
• A business converting or leasing commercial space

…these changes affect how much VAT you can reclaim, and when. Get it wrong, and you could be forced to repay VAT you thought you were entitled to.

And if you’ve never looked at your partial exemption method? You’re already behind.

Charities: A Special Case

A consultation is underway around VAT on charitable donations of goods — particularly for donated items used for business purposes.

Example: a company donates unsold stock to a charity shop. Currently, this can create weird VAT situations. The new proposals aim to simplify it — but until they’re finalised, tread carefully.

🧾 If you:

• Accept donated stock
• Reclaim VAT on purchased goods for fundraising use
• Mix charitable and trading activity

…you need to be keeping cleaner records than ever. The days of HMRC ignoring small mistakes in this area are over.

Don’t Forget the Flat Rate Scheme

While not part of the headline changes, this is a good time to review your Flat Rate Scheme (FRS) if you use it.

Increased thresholds, inflation, and digital systems mean FRS isn’t always the money-saver it once was. And remember: you can’t claim VAT on most purchases under FRS, so if your costs have gone up, you might be better off going back to standard VAT accounting.

Final Word

VAT is one of those taxes that looks simple on the surface — but starts costing real money when you get into grey areas.

This year’s updates are technical, yes. But they’re not optional.
If you manage property, donate goods, run a charity, or operate near the capital goods thresholds — you need to check your treatment before your next return.

If you’re not sure where you stand, don’t wait until the next VAT inspection to find out.
It’s cheaper to ask now than to explain later.