VAT and GST Compliance London — UK VAT 20% and India GST for Indian Businesses 2026 | MICS Blog

VAT and GST Compliance London — UK VAT 20% and India GST for Indian Businesses 2026

UK VAT at 20% is one of the highest indirect tax rates among major economies — and it applies broadly to most goods and services. Indian businesses incorporated in the UK must register for VAT if taxable turnover exceeds £90,000 (from April 2024). Additionally, HMRC's Making Tax Digital (MTD) initiative requires digital VAT record-keeping and electronic filing. Alongside UK VAT, the India parent entity has its own GST obligations. MICS manages dual-country tax compliance for Indian businesses in London and across the UK.

UK VAT Fundamentals

VAT Registration

Mandatory threshold: £90,000 annual taxable turnover (increased from £85,000 in April 2024)
Voluntary registration: below threshold registration beneficial when incurring significant input VAT
Registration: HMRC online portal — UK VAT Registration Number (VRN) issued
VAT groups: related UK companies can register as a VAT group under a single VRN

UK VAT Rate Structure

Standard rate: 20% on most goods and services
Reduced rate (5%): energy saving materials, children's car seats, residential energy
Zero-rated (0%): food (most), children's clothing, books, newspapers, exports outside UK
Exempt: financial services, insurance, postage stamps, medical services, education

Making Tax Digital (MTD) for VAT

All VAT-registered businesses must comply with MTD:

Digital records: all VAT transactions must be kept in MTD-compatible software
Digital links: no manual re-keying between digital records
MTD-compatible filing: VAT return submitted via MTD-approved software (Xero, QuickBooks, MICS ERP)
Penalties: MTD non-compliance carries HMRC penalty points system
MICS provides MTD-compatible bookkeeping and VAT return filing for UK businesses

VAT Returns

Frequency: quarterly (monthly for large traders or refund position businesses)
Return: VAT100 form submitted via MTD-compatible software
Payment: net VAT due paid by return deadline (1 month + 7 days after period end)
Surcharge: late payment interest and surcharge penalties from HMRC

VAT on IT Services to India

For Indian IT companies billing from UK to India parent or India clients:

Place of supply (B2B): where the customer belongs — services to India client are outside UK VAT scope
Zero-rated exports: goods exported to India are zero-rated
Input VAT recovery: UK input VAT on business costs is recoverable where making taxable supplies
Partial exemption: if UK entity makes some exempt supplies, partial VAT recovery calculation needed

Post-Brexit Import VAT

Import VAT: 20% VAT on goods imported into UK from India or third countries
Postponed VAT accounting (PVA): import VAT deferred to the VAT return — cash flow benefit
Customs duty: UK Global Trade Tariff applies post-Brexit — separate from VAT

UK Corporation Tax

Rate: 25% for profits above £250,000 (from April 2023); 19% small profits rate for profits below £50,000
Company Tax Return (CT600): annual HMRC filing within 12 months of financial year end
Corporation Tax payment: 9 months and 1 day after financial year end for SMEs
Withholding tax: 20% on royalties and interest paid to non-residents (India parent)
India-UK DTAA: may reduce withholding tax on dividends, interest, royalties

India GST (Reverse Charge for UK Services)

When India parent receives services from UK entity:

Import of services: reverse charge mechanism (RCM) under India GST
GST rate: 18% on IT and consulting services received from UK
GSTR-3B: RCM reported and paid; ITC claimable in same return
Place of supply: services beneficially consumed in India — India is place of supply

Transfer Pricing (UK–India)

UK transfer pricing: HMRC scrutinises intercompany transactions under OECD TP Guidelines
India TP: CBDT arm's length requirement for India-UK transactions
Documentation: contemporaneous TP documentation required
APA: Advance Pricing Agreement available bilaterally under India-UK DTAA

FEMA (India Outbound Investment)

ODI reporting: RBI Form ODI for Indian company investing in UK subsidiary
Annual Performance Report: UK subsidiary annual performance filing with RBI
Repatriation: dividend and royalty repatriation from UK to India — FEMA compliance

Pricing

UK VAT compliance (quarterly): £800–2,500/quarter (Rs. 87,000–2,72,000)
UK Corporation Tax: £2,000–6,000/year
India GST (reverse charge): Rs. 2,500–7,000/month
Transfer pricing documentation: £5,000–15,000/year
FEMA + ODI compliance: Rs. 10,000–25,000/year

Free India-UK tax consultation: +91 9355273535 | admin@mics.asia