VAT, Tax and Business Rates. The Contract Clauses UK Businesses Should Review Before 28 October

The Autumn Budget on 28 October can shift VAT rates, corporation tax thresholds, employer National Insurance and business rates. When those change, the question of who absorbs the cost is decided by wording you agreed months or years ago. If your contracts say the wrong thing, a tax rise lands on your margin instead of the customer's invoice.

Before 28 October, review five business contract clauses: the price and VAT clause, the tax gross-up or change-in-law clause, the indexation clause, the termination clause tied to material cost change, and any fixed-price commitment that runs past the Budget date. The point is to know, in writing, where each new cost sits, so a policy change does not become an argument with a counterparty.

Why does a Budget matter to contracts you've already signed?

A contract is a fixed allocation of risk. When Parliament changes tax law, the underlying cost of performing the contract changes, but the price you agreed does not move on its own. Someone has to carry the difference, and the wording decides who.

Take a simple worked example. You quoted a client £10,000 plus VAT for a twelve-month software subscription in September. If the standard VAT rate moved, and your contract states the price is "£10,000 plus VAT at the prevailing rate", the extra VAT is added to the client's invoice and passes through to HMRC. If instead the contract says "£10,000 inclusive of VAT", you absorb the increase out of the same £10,000, and your net revenue falls. One word ("inclusive" versus "plus") moves real money.

The same logic applies to employer National Insurance on a staffing or managed-services contract, to corporation tax feeding into a cost-plus arrangement, and to business rates on a lease or licence to occupy. The Budget doesn't rewrite your agreements. It changes the numbers underneath them, and your clauses decide who feels it.

Is your price clause "plus VAT" or "inclusive of VAT"?

This is the first clause to read, because it's the most common and the most costly to get wrong. VAT in the UK is governed by the Value Added Tax Act 1994, and the default position matters. Under section 19, unless a contract states otherwise, a price is generally treated as VAT-inclusive. If you're a supplier and your contract is silent, HMRC can treat the agreed figure as already containing VAT, so you account for the tax out of your headline price rather than adding it on top.

For business-to-business supplies, your price clause should read as VAT-exclusive and reference the prevailing rate. A workable form is:

• Supplier-friendly. "All sums payable under this agreement are exclusive of VAT, which shall be added at the rate in force at the tax point and payable on receipt of a valid VAT invoice."
• What to avoid. "The price is £X including all taxes." This locks you into absorbing any VAT rise for the life of the deal.

Two edge cases worth checking. First, if you sell to consumers, advertised prices usually have to be shown VAT-inclusive, so your quoting and your contract need to line up. Second, if your customer is overseas or the supply is zero-rated or exempt, a blanket "plus VAT at the prevailing rate" is still safe, because the applicable rate may simply be 0% or the reverse charge applies.

Does your contract have a change-in-law or tax gross-up clause?

A change-in-law clause deals with everything VAT wording doesn't cover: corporation tax, employer National Insurance, environmental levies, plastic packaging tax, and any new duty introduced after signing. In a long-running services or supply agreement, this clause decides whether you can adjust the price when a Budget changes your cost base.

Two mechanisms do the work:

1. A price-review trigger. The contract lets the supplier increase charges to reflect an increase in a specified tax or statutory cost, usually on notice and often capped. This protects a supplier on a multi-year deal from swallowing a National Insurance rise.
2. A tax gross-up. Common in financing and cross-border arrangements, this requires the paying party to increase a payment so the receiving party still nets the intended amount after any new withholding or deduction. Read it carefully: a gross-up can shift a large, unexpected liability onto you as the payer.

If you're the customer, the risk runs the other way. An open-ended "the supplier may increase prices to reflect any change in law" clause lets your counterparty pass through costs with little control. Better wording ties the increase to a named, quantified cost, requires evidence of the actual impact, and gives you a right to terminate if the increase exceeds an agreed percentage.

What does your indexation clause tie the price to?

Many multi-year contracts index the price to inflation, typically the Consumer Prices Index (CPI) or the older Retail Prices Index (RPI). A Budget can change tax rates and indirectly affect inflation measures, and it can also change how those indices are calculated. The Office for National Statistics publishes the figures your clause depends on.

Check three things in your indexation clause:

• Which index. RPI has been reformed and is being aligned with a CPIH-based measure from 2030. A contract still hard-coded to RPI needs a fallback for when that index changes or is discontinued.
• The base date and frequency. Annual uplift on the anniversary is standard. Make sure the base month is fixed, so both parties calculate the same number.
• Floors and caps. A collar (a minimum and maximum annual movement) stops a spike in inflation, or in a tax-driven cost, from producing an increase neither side can plan for.

Indexation and tax gross-up can overlap. If your price already rises with CPI, and you also have a change-in-law clause, make sure you're not entitled to recover the same cost twice, because a customer will spot that and dispute it.

Who pays the business rates under your lease or occupancy terms?

If you occupy commercial premises, business rates are a live Budget item. Rates are set using the rateable value from the Valuation Office Agency, with reliefs and multipliers adjusted by government. You can check a property's rateable value on gov.uk.

The clause to read is the one allocating outgoings. In a standard commercial lease the tenant usually pays business rates directly. But in serviced offices, licences to occupy, sub-leases and managed-space arrangements, rates are often bundled into a service charge or licence fee, and a rates change may or may not be passable to you depending on the wording. Look for:

• Whether rates are a recoverable outgoing under the service charge, and whether the landlord can adjust the charge mid-term when rates rise.
• Reliefs. Small business rates relief and any transitional relief affect who benefits when multipliers change. If your licence fee is fixed, a relief that reduces the landlord's actual liability doesn't automatically reduce your fee.
• Rent review interaction. A rates change can feed into an open-market rent review, so a Budget that raises the cost of occupation can push your rent up at the next review.

Should you renegotiate a fixed-price contract before the Budget?

Fixed-price contracts that run past 28 October carry the most exposure, because a fixed price with no change-in-law protection means every tax rise comes out of your margin. If you're a supplier holding fixed-price commitments through the Budget, do a quick exposure check:

1. List every live fixed-price contract that extends beyond 28 October and its remaining value.
2. For each, confirm whether the price is VAT-exclusive and whether a change-in-law or price-review clause exists.
3. Estimate the margin at risk if standard VAT, employer National Insurance or a relevant levy moved by a plausible amount.
4. Prioritise the highest-value, longest-running contracts with the weakest protection.

Where you find real exposure, the options before signing new deals are to move to VAT-exclusive pricing, add a change-in-law clause, shorten the fixed-price period, or build in a break right if costs move beyond a threshold. On existing contracts you generally can't rewrite terms unilaterally, but a variation agreed by both parties, or a fresh order under a framework, can update pricing going forward. Document any variation in writing and have both parties sign it, so there's no argument later about what was agreed.

How do change-in-law and termination clauses work together?

A change-in-law clause and a termination clause are two answers to the same problem. One lets you adjust the price to keep the deal viable; the other lets you exit if it isn't. In practice, well-drafted contracts link them.

A common drafting approach is a price-review clause with a linked termination right: the supplier may pass on a tax increase, but if it exceeds, say, 5% of the annual contract value, the customer may terminate on notice. That balance keeps the supplier whole for ordinary changes while giving the customer an exit from an unaffordable one. Note that force majeure clauses generally do not cover tax or law changes, so don't assume a Budget shift lets anyone walk away under one.

How to review your contracts before 28 October

You don't need to read every agreement end to end. Work from a shortlist of your highest-value and longest-running contracts and check the same points on each:

• Price and VAT. Is the price VAT-exclusive with the prevailing rate added on top?
• Change in law. Can you pass on, or must you absorb, a new or increased tax?
• Indexation. Which index, what base date, any cap or collar, and a fallback if the index changes?
• Business rates and outgoings. Who pays, and can rates changes be passed to you mid-term?
• Termination. Is there an exit if costs move beyond a threshold?

Reviewing dozens of agreements against the same checklist by hand is slow, and it's where inconsistencies creep in, because a clause that reads fine on its own may conflict with the price clause three pages later. GenieAI reviews counterparty contracts against your own positions and flags each clause red, amber or green, so you can see at a glance which agreements leave a tax rise sitting on your margin and which are protected. That's the difference between finding out on 28 October and knowing weeks before.

If a specific clause carries a large or unusual liability, a tax gross-up in a financing agreement, for example, get advice on that clause before you sign it. For the routine work of checking price, VAT and change-in-law wording across a contract portfolio, the task is knowing what to look for and applying it consistently to every agreement you hold.