Extension of Making Tax Digital (MTD) for VAT
In case you haven’t yet come across this, Making Tax Digital (MTD) requires you to have a bookkeeping software package that links up to HMRC to file VAT returns.
We have done this for many clients, but now the rules apply to all VAT registered businesses – not just those with annual sales of more than £85,000. So, this blog is aimed at small businesses currently managing their bookkeeping offline (for example, on spreadsheet or manual records). The deadline is a while away, but moving over to a new bookkeeping system does take a while so we want to give you plenty of warning.
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.
How to keep digital records
You need to use a compatible software package or other software (like spreadsheets) that connect to HMRC systems. If you use more than one software package to keep records and submit returns, you need to link them. You must have links between the software you use by your first VAT period after 1 April 2021.
We hope that you find this MTD for VAT guide useful. 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.