HMRC have published a policy paper outlining the final phase of Making Tax Digital (MTD) for VAT returns which means that from April 2022 MTD’s being imposed on everyone .
So far the only VAT registrations that have had to comply with MTD are those trading above the £85k compulsory registration threshold. This final phase of MTD means that the remaining approximately 1.1m VAT registered businesses who are trading below the VAT threshold will also need to change their VAT accounting and become MTD compliant.
Seemingly about a quarter of VAT registered businesses trading below the VAT threshold have already voluntarily chosen to join MTD, which HMRC see as demonstrating that a modern, digital approach to managing tax can work for businesses of every size.
So what this all means is that smaller businesses need to do something in order to comply with MTD.
It might be that an easy answer is to adopt an accounting package with an integrated VAT filer. Those currently using Excel for their accounting can continue to do so but will need to adopt new methodology to ensure VAT data is handled digitally from start to finish.
These changes extend MTD requirements to smaller VAT businesses from their first VAT period starting on or after 01 April 2022. They build on what HMRC describe as “the successful introduction in April 2019 of MTD for those VAT businesses with taxable turnover above the VAT threshold”.
The policy paper refers to a “growing body of evidence, from research and insights from taxpayers within MTD for VAT, which demonstrates that MTD is securing a range of benefits for those that use it in practice. These benefits include reducing or eliminating paper-based or manual processes through use of software and an integrated approach to business administration and tax, allowing for greater accuracy in tax returns. This reduces the time businesses spend on administration, providing businesses more time to maximise business opportunities, productivity and profitability. MTD’s intention is that, for the majority of businesses, tax will be made easier to get right and harder to get wrong.”
MTD’s being imposed on everyone and April will be here before we know it so best to start thinking about this now and be ready for the new rules.
Please call if you need any help. AVS VAT has a lot of experience in this area and even operates its own MTD Bureau. This has helped all manner of different client operations become MTD compliant and has proved to be a cost effective solution.