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Business Tax

Business Tax

Making Tax Digital for Business: VAT

April 2022 sees the final phase of the introduction of the Making Tax Digital (MTD) for VAT regime. All
VAT registered businesses, regardless of turnover, will enter MTD for VAT from their first VAT return
period starting on or after 1 April 2022.

Businesses must keep digital records for VAT purposes and provide their VAT return information to HMRC
using MTD functional compatible software.


Keeping digital records will not mean businesses are mandated to use digital invoices and
receipts but the actual recording of supplies made and received must be digital. It is likely
that third party commercial software will be required. Software is not available from HMRC. The
use of spreadsheets will be allowed, but they will have to be combined with add-on software to
meet HMRC’s requirements.

HMRC is looking at a scenario where income tax updates are made quarterly and digitally under the
MTD for Income Tax Self Assessment (ITSA) from April 2024.

MTD for Corporation Tax (CT)

The Government is committed to ongoing collaboration with stakeholders on the service design and,
following any decision to mandate MTD for CT, will provide sufficient notice ahead of implementation but
this will not be mandated before 2026 at the earliest.

Corporation Tax rates

The main rate of CT is 19% for the Financial Year (FY) beginning 1 April 2022. This rate will increase to
25% for the FY beginning on 1 April 2023.

If a company’s accounting period straddles more than one FY, the amount of profits for that accounting
period must be apportioned to arrive at the tax rate charged.

A small profits rate will be introduced for qualifying companies with no associated companies in the
accounting period and profits of £50,000 or less so that they will continue to pay CT at 19%. Companies
with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief
providing a gradual increase in the effective CT rate.

Capital allowances

Plant and machinery

A further extension to the temporary increase in the Annual Investment Allowance (AIA) to 31 March 2023
allows 100% tax relief to businesses investing up to £1 million in qualifying expenditure.

The AIA reverts to £200,000 for expenditure incurred on or after 1 April 2023 and special rules apply to
accounting periods which straddle these dates.

First Year Allowances (FYA) for companies

For qualifying expenditure which is unused, not second-hand and is incurred on or after 1 April 2021 but
before 1 April 2023 a super-deduction of 130% is available where the expenditure would normally qualify
for the 18% main rate of writing down allowance or a Special Rate Allowance of 50% for expenditure
which would normally attract the 6% special rate of writing down allowance.

For FYAs, what matters is the actual date on which the expenditure is incurred and not the date on which
it is treated as incurred.


Businesses incurring expenditure on plant and machinery should carefully consider the timing of their acquisitions to optimise their cashflow. In 2023, not only will the tax relief rules for expenditure on plant and machinery change, but for companies the percentage of CT relief on that expenditure may change as well.

Preventing abuse of the R&D tax relief

From April 2023 a number of changes are proposed to the regimes from both existing schemes of relief
which will include the expansion of relief to cloud and data computing.

Claims for relief will have to be made digitally and more detail will be required within the
claim. Each claim will need to be endorsed by a named senior officer of the company and companies
will need to inform HMRC, in advance, that they plan to make a claim. Claims will also need to include
details of any agent who has advised the company on compiling the claim.

Cultural relief

A temporary increase in cultural tax reliefs for theatres, orchestras, museums and galleries across the
UK will apply until 31 March 2024, increasing the relief organisations can claim as they invest in
new productions and exhibitions.

From 1 April 2022 changes will also be introduced to better target the cultural reliefs and ensure that
they continue to be safeguarded from abuse.

The Residential Property Developer Tax

The Residential Property Developer (RPDT) will be introduced on the very largest property developers
for accounting periods beginning on or after 1 April 2022.

Broadly RPDT is a charge of 4% treated as corporation tax on the profits of the residential property
developer over an allowance of £25 million in a 12-month period.

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