This article gives an update on Making Tax Digital, Corporation Tax Rates and Capital Allowances. There is also an update on The Residential Property Developer Tax which was introduced in April 2022.
Making Tax Digital for Business: VAT
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. Hopefully, you have already sorted this out but if not have a look at this link to help you decide which software will be best for your business if you need any advice contact us and we can help - Find software that's compatible with Making Tax Digital for VAT.
Making Tax Digital for Corporation Tax is unlikely to be mandated before 2026 at the earliest.
VAT rates and limits
The VAT registration and deregistration thresholds will remain unchanged for a period of two years from 1 April 2022.
The six-month extension to the UK-wide VAT reduction to 12.5% for the tourism and hospitality sectors comes to an end on 30 March 2022 with rates returning to the standard rate of 20%.
Corporation Tax Rates
Corporation Tax charge and the main rate at:
- 19% for the financial year beginning 1 April 2022
- 25% for the financial year beginning 1 April 2023
Small Profits Rate at 19% for the financial year beginning 1 April 2023
If a company’s accounting period straddles more than one financial year, the amount of profits for that accounting period must be apportioned to arrive at the tax rate charged.
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 for companies - From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will be able to claim:
- a 130% super-deduction capital allowance on qualifying plant and machinery investments
- a 50% first-year allowance for qualifying special rate assets
The super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest, ensuring the UK capital allowances regime is amongst the world’s most competitive.
The Residential Property Developer Tax
The Residential Property Developer will be introduced on the very largest property developers for accounting periods beginning on or after 1 April 2022. This will impact companies or groups of companies undertaking UK residential property development with annual profits in excess of £25 million.
This measure will introduce a new 4% tax treated as corporation tax on the profits of the residential property developer over an allowance of £25 million in a 12-month period.
If you would like any advice about business tax or support with financial forecasting taking these changes into account, please do contact us by calling 01623 490 120 or email