HM Revenue & Customs (HMRC) aims to become one of the most digitally advanced tax administrations in the world. As part of this goal, the government’s Making Tax Digital (MTD) scheme has been introduced, making it easier for individuals and businesses to keep on top of their affairs and make accurate tax submissions. The scheme legally requires eligible businesses to record transactions digitally and submit value added tax (VAT) returns using compatible accounting software.
Since April 2019, businesses with a taxable turnover above £85,000 are required to follow MTD to file their VAT returns. Going forward, all VAT-registered businesses, regardless of turnover, must file digitally through MTD from 1st April 2022.
The Scheme’s Aims for VAT
The MTD scheme aims to make tax administration more effective, efficient and easier for taxpayers to understand. For businesses already signed up, 69% have experienced at least one benefit, with 55% reporting MTD has made submitting VAT returns faster, according to data from HMRC. Moreover, 67% of businesses felt MTD reduced the potential for mistakes in at least one aspect of the record-keeping, preparing and submitting returns process.
Steps to Sign Up
Any business that isn’t yet signed up must register for the MTD scheme before April 2022 unless exempt. The steps are as follows:
- Visit GOV.UK and choose an MTD-compatible software.
- Keep digital records starting from 1st April 2022 or the beginning of the next VAT period.
- Sign up and submit VAT returns through MTD.
To sign up, businesses need to have the following available:
- Business email address
- Government Gateway user ID and password (one can be created online)
- VAT registration number
- Latest VAT return
It’s important to sign up for MTD at least five days after the last non-Making Tax Digital VAT return deadline date and no less than seven days before the first MTD VAT return deadline to avoid paying for VAT twice.
Agents can sign up on behalf of a business, although businesses remain responsible for meeting their VAT obligations.
The new rules don’t change normal VAT return deadlines or the information that needs to be sent.
Software
One of the main takeaways from the new scheme is the use of compatible software. Businesses completing their accounts using spreadsheets, manual records or a digital accounting method of their choice must instead switch to using MTD-compatible software. The software chosen must be able to:
- Keep and maintain digital records specified in the regulations
- Prepare VAT returns using these records
- Communicate with HMRC through a digital link
A list of compatible software can be found on the GOV.UK website, including free and low-cost options.
With the April 2022 deadline for businesses to sign up drawing nearer, customer service lines of software providers and accountants will get increasingly busy. As there will be penalties for non-compliance, it’s essential that businesses begin the sign-up process as soon as possible so they don’t risk a fine.
Next Steps
Going forward, the government will be extending the scheme further. Self-employed businesses and landlords with annual business or property income above £10,000 will need to follow the rules of MTD for Income Tax from their next accounting period starting on or after 6th April 2024. The legislation will also apply to partnerships.
MTD for Corporation Tax is currently under consultation but is expected to be established from or after 2026.
Further Information
For help and support with signing up for MTD, HMRC is running a series of webinars. More information can be found on HMRC’s Making Tax Digital help page.
For more information on the new regulations, contact us today.