Businesses have less than a week to prepare for Making Tax Digital (MTD) for VAT becoming mandatory for VAT-registered businesses on 1 April, warns HMRC
All VAT-registered businesses must use MTD for VAT for their first VAT return starting on or after 1 April 2022 although they will not have to pay VAT via MTD until July 2022.
HMRC urges businesses to use the time left to choose software, whether that is one of the simple free options available, or a more advanced product for those with more complex affairs.
Businesses should ensure that they sign up to MTD at least five days after their last non-MTD for VAT return deadline date, and no less than seven days before their first MTD for VAT return deadline date to avoid paying for their VAT twice.
Evidence shows MTD is succeeding in its central aims of reducing errors, while also making it faster to prepare and submit returns, and boosting productivity for businesses. New research, conducted by HMRC and peer reviewed by independent academics, shows MTD is likely to have generated increased revenue through reducing errors in 2019 and 2020.
Nearly 1.6m taxpayers had joined MTD for VAT as of December 2021 with more than 11m returns submitted. Around a third of VAT-registered businesses with taxable turnover below £85,000 have voluntarily signed up to MTD for VAT ahead of April 2022.
Lucy Frazer, financial secretary to the Treasury, said: ‘Businesses using MTD are saving time on their tax affairs, streamlining their processes and boosting their productivity as a result.
‘Our first move towards a modern, digital tax service – MTD makes it easier for businesses to get their tax right first time.’
Accountants can sign up on behalf of a business, although businesses remain responsible for meeting their VAT obligations. Those who do not join may be charged a penalty for failure to do so.
There are a range of compatible software products available for MTD for VAT, allowing businesses to choose which tools they use to run their business and tax affairs. A list of software compatible with MTD for VAT, including free and low-cost options, can be found on gov.uk.
Some VAT-registered businesses may be eligible for an exemption from MTD, if it is not reasonable or practicable for them to use digital tools for their tax. If a business has previously been granted an exemption for VAT online filing, this will carry over to MTD for VAT requirements.
To sign up to MTD VAT, businesses, or an agent on a businesses’ behalf, need to:
Step 1: Visit gov.uk and choose MTD-compatible software
Step 2: Keep digital records starting from 1 April 2022 or the beginning of their VAT period
Step 3: Sign up and submit their VAT return through MTD
Useful links
Links to commentary, legislation and other resources on Making Tax Digital can be accessed via the Quick Link
For commentary on MTD for VAT, see In-Depth: 55-080 Making Tax Digital
See also Hardman’s Key Data: 2-005 Digital reporting and record-keeping (Making Tax Digital)
Digital Services are covered in the HMRC Self Assessment Manual: SAM50530
Credit: Croner-i