All VAT-registered businesses must comply with Making Tax Digital (MTD) rules, regardless of how much they make each year. This will take place from 1 April 2022.
The changes mean all VAT-registered businesses must compile and submit VAT returns using software that connects to HMRC’s systems.
They can do that through a bridging tool or using an application programming interface (API). This will connect non-compatible software, such as Excel spreadsheets, to HMRC’s systems.
Alternatively, businesses can adopt one of several HMRC-recognised and compatible MTD software solutions, including cloud accounting platforms.
Although MTD for VAT is not completely new, this is a big change for smaller businesses. Many of these small businesses do not digitally store business records and file VAT returns.
Businesses with an annual turnover of £85,000 or above have been required to meet MTD for VAT obligations. This has been the case since April 2019.
MTD is the Government’s flagship policy to digitise and modernise the tax system. Their aim is making it more understandable and efficient. As a result, they hope less tax revenue is lost to mistakes and errors.
When will this affect you?
All VAT-registered businesses must follow MTD for VAT rules from either 1 April, 1 May or 1 June 2022. This is dependent on their VAT return quarters.
Any trader who should be filing VAT returns under MTD but has not registered will be charged a penalty.
However, businesses can apply for an exemption. For example, if they are unable to use digital tools, because of remoteness or religious beliefs.
MTD for income tax is expected to come into force in April 2024. It has been delayed by a year to give businesses more time to recover from the worst of the pandemic.
Corporation tax is not expected to come into effect until April 2026 at the very earliest.
We are always here to help with any MTD queries you may have. If you need assistance or have questions, feel free to drop us a message below. Alternatively, you can get in touch with your usual Jack Ross contact. They will be happy to assist wherever they can.