From the 1 April 2022, MTD for VAT will apply to all VAT registered businesses regardless of the level of turnover.
The first VAT period to which MTD applies to all VAT registered businesses (who are not already doing so) will be the one commencing on or after 1 April 2022.
What is “Making Tax Digital”?
Making Tax Digital (MTD) is a government initiative to modernise HMRC’s tax system, with the aim of making the whole process of administrating tax simpler and more efficient. All of your tax information will be in one place (your digital account) and you will be able to pay tax based on your business activity during the year. You can upload and update your tax account in real time.
Will it affect me?
If you own a business, you are self-employed and you pay income tax, national insurance, VAT or corporation tax, then it is quite likely you will be affected. This means you could be required to keep track of your tax affairs digitally using MTD compatible software, and to update HMRC at least quarterly via your digital tax account.
Eventually this will abolish the annual tax return. This will be the law and there will be penalties for non-compliance.
When is all this happening?
MTD for VAT has already started and has been “live” for nearly two years. It started with businesses above the VAT threshold limits (currently £85,000) in April 2019.
From the 1 April 2022, MTD for VAT will apply to all VAT registered businesses regardless of level of turnover.
This notice below explains the rules for Making Tax Digital for VAT and about the digital information you must keep if they apply to you. It was last updated 31 December 2020.
Please talk to us about how we can help your business comply with the new rules. We can recommend the right software and provide the training and support you need.
VAT notice 700/22: Making Tax Digital (MTD) for VAT
This notice explains the rules for Making Tax Digital for VAT and about the digital information you must keep if they apply to you. It was last updated 31 December 2020.
Rules introduced under the Making Tax Digital (MTD) initiative mean VAT registered businesses with taxable turnover above the VAT registration threshold need to keep digital records and submit VAT Returns to HMRC using compatible software. From 1 April 2022 this will apply to all VAT registered businesses.
This notice explains:
- the digital records businesses must keep, and ways to record transactions digitally in certain special circumstances;
- what counts as compatible software, and when software programs do and do not need to be digitally linked where a combination of programs is used.
MTD for VAT requires VAT registered businesses with taxable turnover above the VAT registration threshold to keep records in digital form and file their VAT Returns using software.
It is increasingly common for business records and accounts to be kept digitally, in a software program on a computer or tablet, or in a smartphone application, or maintained through such a device and stored using a cloud-based application.
The difference under MTD is that the software which businesses use must be capable of keeping and maintaining the records specified in the regulations, preparing their VAT Returns using the information maintained in those digital records and communicating with HMRC digitally through the Application Programming Interface (API) platform.
If your digital records are up to date, software will be able to collate and prepare your return for you. It will then show the return to you and ask you to declare that it is correct and confirm that you want to submit it to HMRC.
Once you have submitted your return you will receive confirmation through your software that it has been received.
The notice provides further details of the Making Tax Digital rules. The overview of MTD can be seen here: https://www.gov.uk/government/publications/making-tax-digital/overview-of-making-tax-digital