7 | Increased HMRC scrutiny of consumer brands and retailers
What is happening?
HMRC is expected to sharpen its scrutiny of consumer brands and retailers, against a backdrop of significant tax policy shifts designed to nudge behaviour, tighten compliance and reduce tax loss by further closing the tax gap (being the shortfall between tax owed and tax collected). To close the tax gap, the government intends to provide £1.7bn to HMRC across four years and fund an additional 5,500 compliance and 2,400 debt management staff. The government estimates this will enable the tax department to raise an extra £7.5bn by 2029/2030. Also, to this end, the government has been holding consultations in various sub-sectors to consider what further measures are necessary towards improving compliance.
However, it is not all one-sided, as the government plans to introduce measures that support and provide relief to sectors that are considered to play an important role in the UK, for example charities and community organisations, as well as promoting health and tackling obesity through the Soft Drinks Industrial Levy (SDIL).
Recently, the government held consultations in relation to gambling duties, donations of goods to charities, SDIL and landfill taxes and, in November 2025, published news about proposed measures to be introduced. We provide a brief overview of some of the key proposed measures below:
SDIL
Will be strengthened: the lower sugar threshold falls from 5.0g to 4.5g per 100ml, exemptions for milk‑based drinks with added sugar and sweetened milk‑substitute drinks are removed, a tailored lactose allowance will exclude most naturally occurring lactose when assessing liability, with these changes taking effect on 1 January 2028.
Gambling
The government is implementing a package of gambling duty reforms intended to raise over £1bn per year. This includes:
- increasing the tax rate for remote gaming where the duty will jump from 21% to 40% from April 2026
- introducing a new 25% rate for remote betting from April 2027, with UK horseracing bets remaining at 15% in recognition of the statutory levy
- abolishing Bingo Duty from April 2026
- providing £26m in new funding to the Gambling Commission over three years to tackle illegal operators and protect consumers.
Donations of goods to charities
From 1 April 2026, a new VAT relief will enable VAT‑registered businesses to donate surplus goods VAT‑free to registered charities for onward distribution or use in their non‑business activities, supported by proportionate certification and record‑keeping, subject to per‑item value limits and exclusions. VAT Notice 701/1 has been updated to include guidance regarding the new VAT relief. The updates are contained in section 5.5 of the VAT Notice.
Landfill Tax
Will not move to a single rate by 2030; the government will instead increase the lower rate in line with the cash increase of the standard rate, retain key exemptions, and push towards circular economy outcomes. If dredging stablisers feature in your business’ projects or supply chain, you should plan for the exemption's removal from April 2027.
How might it impact your business?
At the compliance end, we anticipate that businesses should expect more enquiries from HMRC and will need to be forearmed by ensuring compliant practices, obtaining specialist advice and retaining sufficient evidence to address any enquiries from HMRC.
SDIL
In relation to SDIL, HMRC may investigate product classifications, recipe formulations, duty point identifications, valuations, and the integrity of evidence trails. Beverage portfolios may also need careful attention: products sitting between 4.5 and 4.9 grams of sugar per 100ml will now be caught unless reformulation brings them below the new threshold, and dairy or plant‑based lines with added sugar will face SDIL unless covered by the lactose allowance or the “core ingredient” treatment for unsweetened milk substitutes. That usually means detailed recipe sheets, clarity on ingredient sources (including powders), and a reliable calculation framework.
Gambling
In the gambling industry, duty changes and enhanced enforcement budgets raise the stakes for marketing governance, contractual terms and any ancillary betting activity in retail estates likely impacting sponsorships, affiliates, in store kiosks and co-promotions.
Donations of goods to charities
For retailers and brands embracing redistribution, the VAT relief on donations is both an ESG win and a compliance obligation. Per‑item value caps (£100 generally, £200 for listed essentials like white goods, furniture and key tech) make robust stock data and cost‑of‑goods valuation essential, alongside certification from recipient charities and delivery note evidence.
Landfill Tax
On waste, even though a single rate has been shelved, costs will drift upward with the lower‑rate escalator. Regulators have flagged tighter alignment and enforcement across HMRC and the Environment Agency, so misdescription risks and due diligence gaps will draw attention.
What action should you consider?
We encourage businesses to engage as early as possible to assess and consider the impact of the new proposed measures and begin planning accordingly to try and stay ahead of HMRC’s heightened scrutiny.
SDIL
For SDIL, plan early for the strengthened levy. Where reformulation is likely, this may involve staging research and development and consumer testing, aligning packaging and go‑to‑market timelines with other regulatory changes. It is also recommended to keep your evidence tight: maintain recipe sheets, document ingredient sources (including powders), and put a reliable, repeatable method in place for calculating any lactose allowance.
Gambling
Businesses in the gambling industry may benefit from reassessing and reviewing their duty position, marketing governance, and contracts. It may be helpful to consider and confirm whether activities are remote or land‑based, note the new rates and dates, and ensure any shop terminals are configured and accounted for correctly. The Gambling Commission’s enlarged enforcement budget means weaker controls are more likely to be challenged.
Donations of goods to charities
For businesses that want to benefit from the new VAT relief on donations, it may be helpful to write a policy that defines eligible goods and recipients (registered charities) and be disciplined about the paperwork: obtain a simple certification from the charity, keep a delivery note or equivalent, and record what was donated, its value, and to whom it was donated. Use cost‑of‑goods‑sold for valuation, embed the per‑item caps (£100 generally and £200 for essential categories) in your systems, and train the teams who will operate the process day‑to‑day. This should be ready to run from April 2026.
Landfill Tax
On landfill tax, businesses are likely to experience a steady increase in disposal costs for lower‑rated material and tighter oversight of misdescription. Businesses may benefit from reviewing contracts and permitted sites, strengthening due diligence over carriers and brokers, and preparing for greater enforcement co‑ordination between HMRC and the Environment Agency.
