April 2022 sees the final phase of the Making Tax Digital (MTD) introduction for the VAT regime. All VAT registered businesses, regardless of turnover, will enter MTD for VAT from their first VAT return period starting on or after1 April 2022.
Businesses must keep digital records for VAT purposes and provide their VAT return information to HMRC using MTD functional compatible software.
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| 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. Third-party commercial software will likely 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. |
The Government is committed to ongoing collaboration with stakeholders on the service design. 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.
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.
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 that straddle these dates.
For qualifying expenditure that 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.
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| Businesses incurring expenditure on plant and machinery should carefully consider the timing of their acquisitions to optimise their cash flow. 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. |
From April 2023, several 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.
If you would like any advice about how the Spring Budget 2022 may affect your business, please do contact us by calling 0115 928 3228 or by emailing info@coalesco.co.uk
