UK: VAT scope extended, income tax start date announced (making tax digital)

UK: VAT scope extended

A program—“making tax digital” (MTD)—will apply effective from April 2022 to all UK value added tax (VAT) registered businesses regardless of their turnover. MTD regime will apply with regard to certain business income tax records from April 2023.

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HM Revenue & Customs (HMRC) announced the extension of the MTD regime. Currently, the MTD rules only apply to those entities whose UK taxable turnover is above a VAT threshold of £85,000.

The MTD regime includes requirement for digital records and the use of compatible software to submit the VAT returns. The change will affect all businesses that are voluntarily registered for UK VAT unless they are able to secure an exemption from the MTD rules. 

The MTD regime will require businesses to keep VAT records digitally and use software that is MTD compatible. This may be a change to the current approach and involve some expense. The requirement for digital links between software programs, which has been a challenge for larger businesses, is unlikely to be as challenging for micro businesses. However, it may well be relevant for businesses that are larger but whose UK taxable supplies are under the threshold because their main turnover derives from exempt or outside the scope of UK VAT supplies.

In addition, the government announced that from April 2023, businesses and landlords with business income over £10,000 per annum and that are liable for income tax, need to keep digital records and use software to update HMRC quarterly through MTD.


Read a July 2020 report prepared by the KPMG member firm in the UK

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