UK Making Tax Digital, VAT & Corporation Tax Compliance Guide

HMRC's flagship digitalisation programme requires businesses to keep digital records and submit returns using MTD-compatible software. MTD for VAT is already mandatory; MTD for Income Tax Self Assessment (ITSA) rolls out from April 2026.

• MTD for VAT: mandatory for all VAT-registered businesses
• MTD for ITSA: from April 2026 for income > £50,000
• MTD for ITSA: from April 2027 for income > £30,000
• Digital record-keeping required (no spreadsheets without bridging)
• Quarterly updates + End of Period Statement (EOPS)
• Final declaration replaces Self Assessment tax return
• Use HMRC-recognised MTD-compatible software
• Digital links required between all parts of the record

UK VAT has three rates. Businesses must register when taxable turnover exceeds £90,000 (from April 2024). VAT returns are submitted quarterly via MTD-compatible software.

• Register when taxable turnover > £90,000 (rolling 12 months)
• Voluntary registration available below threshold
• Quarterly VAT returns via MTD software
• Flat Rate Scheme for small businesses (turnover < £150,000)
• Cash Accounting Scheme (turnover < £1.35M)
• Annual Accounting Scheme (turnover < £1.35M)
• Reverse charge for construction services (CIS)
• EC Sales Lists replaced by postponed VAT accounting post-Brexit

UK companies pay Corporation Tax on profits. The main rate is 25% for profits over £250,000; a small profits rate of 19% applies under £50,000, with marginal relief between.

• Main rate: 25% (profits > £250,000)
• Small profits rate: 19% (profits < £50,000)
• Marginal relief for profits between £50,000–£250,000
• CT600 return due 12 months after accounting period end
• Tax payment due 9 months + 1 day after period end
• Quarterly instalment payments for large companies (> £1.5M profit)
• R&D Tax Relief: SME scheme (86% of costs) or RDEC (20%)
• Annual Investment Allowance: 100% on first £1M of plant & machinery

Employers must operate PAYE through Real Time Information (RTI), reporting payroll to HMRC on or before each pay date. This includes Income Tax, National Insurance, and Student Loan deductions.

• Full Payment Submission (FPS) on or before each payday
• Employer Payment Summary (EPS) for corrections and recoveries
• Income Tax via tax codes (cumulative or week 1/month 1)
• National Insurance: employer 13.8%, employee 8% (above thresholds)
• Student Loan deductions (Plan 1, 2, 4, 5 & Postgraduate)
• Apprenticeship Levy: 0.5% for pay bills > £3M
• Employment Allowance: £10,500 NIC reduction (eligible employers)
• P11D for Benefits in Kind (due 6 July)

All UK employers must auto-enrol eligible workers into a workplace pension scheme. Minimum contributions are 8% of qualifying earnings (3% employer, 5% employee).

• Employer minimum contribution: 3% of qualifying earnings
• Employee minimum contribution: 5% of qualifying earnings
• Eligible jobholders: aged 22–SPA, earning > £10,000/year
• Non-eligible jobholders: can opt in
• Re-enrolment every 3 years for opted-out employees
• NEST (National Employment Savings Trust) as default scheme
• Declaration of compliance to The Pensions Regulator
• Penalties for non-compliance: £50–£10,000/day

CIS requires contractors in the construction industry to deduct tax from subcontractor payments and pass it to HMRC. Deduction rates depend on subcontractor verification status.

• Deduction rates: 0% (gross), 20% (net), 30% (unregistered)
• Monthly CIS returns due by 19th of following month
• Verify subcontractors before first payment
• Subcontractors offset deductions against their tax
• Applies to construction operations (not materials only)
• Reverse charge VAT for CIS supplies (since March 2021)