With Making Tax Digital for Income Tax, originally planned for rollout in April 2018, delayed until April 2022 and now again deferred to April 2024, you’d be forgiven for thinking it might never happen (spoiler, it probably will!). But there are changes to MTD due in in the next few months, namely MTD for VAT.
First introduced in April 2019 for VAT registered businesses trading above the VAT registration threshold (currently £85,000), Marking Tax Digital for VAT is being extended to all VAT registered businesses for VAT returns commenting on or after 1 April 2022. This will mean that businesses currently exempt from the rules due to being voluntarily registered and trading below the registration limit, will have to comply with the same rules for the first time.
The rules require VAT registered businesses to keep compliant digital records and to submit VAT returns to HMRC using API enabled software (that is, software that can communicate directly with HMRC’s servers). The existing web portal for the submission of VAT returns is expected to be phased out.
HMRC expect many businesses to begin to use accounting software and have a list of 600+ compatible solutions on their website, including some free options. We currently expect all businesses to have to actively register with HMRC for MTD and businesses can choose to voluntarily register before 1 April 2022 if they are ready sooner. Care should be taken not to register before you have implemented compatible software and submitted all prior outstanding returns however, as the existing web portal will be disabled once registration is complete.
For VAT registered business trading below the threshold, now is the time to consider how the new rules will impact you. For those already using software, it may be as straightforward as registering with HMRC. For others, they may need to investigate software options, plan the implementation and training, or speak to their accountant for support. For some voluntarily registered businesses, the new obligations may tip the scales in favour of simply deregistering from VAT altogether.
For further information on Making Tax Digital or to find out how Morris Owen can help, please contact us.