Policy paper

Powers and safeguards for VAT refund claims made using form VAT126

Published 28 October 2026

Who is likely to be affected 

This measure provides a power which enables the introduction by secondary legislation of powers relating to claims of VAT refunds on form VAT126 and safeguards for customers who make such claims. The powers will allow secondary legislation to be made affecting bodies in the following categories, which are not VAT registered and which claim such refunds:   

• local authorities and other bodies covered by the Value Added Tax Act 1994 (VAT Act 1994) section 33, as defined in VAT Act 1994 section 33(3)  
• museums and galleries specified by Treasury Order, to which VAT Act 1994 section 33A applies
• academies, with the meaning in the Education Act 1996 (see section 579), to which VAT Act 1994 section 33B applies
• palliative care, air ambulance, search and rescue, and medical courier charities as defined in VAT Act 1994 section 33D, to which section 33C applies
• other persons specified by Treasury Order, to which VAT Act 1994 section 33E applies   

General description of the measure 

This measure amends VAT Act 1994 to include a power for the Commissioners for HMRC to make secondary legislation relating to refunds claimed under sections 33 to 33E VAT Act 1994. The power will allow the Commissioners to make regulations concerning HMRC powers and safeguards for bodies making VAT126 claims, which will allow these claims to be treated in a similar manner to claims made under the same sections by VAT-registered bodies. This may include the power to assess for amounts refunded, and the right of appeal in relation to decisions made about VAT126 claims. 

Policy objective 

The policy objective is to promote fairness between VAT registered and non-VAT registered entities of a similar nature making claims under VAT refund schemes, by giving the Commissioners for HMRC the power to make secondary legislation making both subject to similar HMRC powers.

The refund claims of these bodies under sections 33, 33A, 33B, 33C, and 33E VAT Act 1994 are subject to certain HMRC powers, for example powers of assessment, when made on a VAT return, whereas certain powers are not available to HMRC in respect of claims made by non-VAT registered bodies. Whilst the new power enables the making of secondary legislation in respect of all claims under these sections, the objective of this measure is to enable the making of legislation specifically relating to VAT126 claims. 

The measure also promotes fairness by enabling the introduction of safeguards such as the right of appeal for such non-VAT registered entities. Currently only VAT registered entities can appeal against a decision by HMRC as to the reduction or denial of a claim under sections 33, 33A, 33B, 33C, or 33E, whereas non-VAT registered entities do not have the same appeal rights in respect of HMRC decisions. 

Background to the measure 

At Autumn Budget 2026 the government announced legislation to create a power enabling the introduction by secondary legislation of powers and safeguards in relation to claims made by non-VAT registered entities under sections 33, 33A, 33B, 33C, and 33E of VAT Act 1994. 

Detailed proposal 

Operative date 

The enabling power will have effect from Royal Assent to Finance Bill 2026-27, after which the secondary legislation enabled by the power may be made. The consequential amendments will take effect from the date on which the Treasury appoints by regulations. 

Current law  

Current law providing for the refund schemes in question is included in sections 33, 33A, 33B, 33C, 33D, and 33E of VAT Act 1994. 

Sections 33(1), 33A(2), 33B(2), 33C(3), and 33E(2) VAT Act 1994 state that the Commissioners shall refund to a body covered by these refund schemes the amount of VAT so chargeable in relation to certain activities not carried out for the purpose of any business, and allow the Commissioners to determine the form and manner of such claims. For organisations not registered for VAT, these claims must be submitted using form VAT126. 

Proposed revisions 

The changes will add a new Section 33F to VAT Act 1994 to introduce a power for the Commissioners of HMRC to make regulations to create new powers and safeguards. 

This measure will give the Commissioners the power to make regulations concerning, for example, the making of claims, the introduction of a new assessment power relating to refunds, and of error correction provisions relating to claims. The powers will also allow legislation to be made which introduces a new right of appeal against decisions in respect of these claims, and which introduces the right to repayment interest.  

Consequential amendments, to come into force on a day specified by secondary legislation will be made to sections 33, 33A, 33B, 33C, and 33E of VAT Act 1994. These amendments remove provisions enabling the Commissioners to determine the time, form and manner of refund claims, as well as (in the cases of sections 33A to 33E) provisions concerning the time limit for claims. The power to make secondary legislation can be used to replace the provisions at sections 33A to 33E concerning time limits. 

Summary of impacts 

Exchequer impact (£ million) 

2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030	2030 to 2031	2031 to 2032
nil	nil	nil	nil	nil	nil

This measure is not expected to have an Exchequer impact. 

Economic impact 

This measure is not expected to have any significant macroeconomic impacts.  

Impact on individuals, households and families 

This measure is expected to have no impact on individuals, households or families as it only affects businesses and civil society organisations who claim VAT refunds on form VAT126.   

Equalities impact 

This measure does not affect individuals, therefore it is not anticipated that there will be disproportionate impacts on any protected groups. 

Administrative impact on business including civil society organisations 

This measure is expected to have no impact on businesses or civil society organisations as it is purely an enabling power, providing the legislative framework to introduce powers and safeguards for VAT126 customers.  

The businesses and civil society organisations impacted by the introduction of these powers and safeguards will be local authorities and other section 33 bodies; specified museums and galleries; academy schools; palliative care, air ambulance, medical courier, and search and rescue charities, and section 33E bodies.    

Operational impact (£ million) (HMRC or other) 

HMRC will not incur any extra costs implementing this change. 

Other impacts 

Other impacts have been considered and none have been identified. 

Monitoring and evaluation 

The impact of this measure will be monitored by comparing baseline data with claim and compliance yield data in the four years following the commencement of the secondary legislation it is intended to enable.  

Further advice 

If you have any questions about this change, contact Eilís Ní Bhriain by email at eilis.nibhriain@hmrc.gov.uk.