Businesses have less than a week to prepare for Making Tax Digital (MTD) for Value Added Tax (VAT) becoming mandatory for VAT-registered businesses on 1 April, HM Revenue and Customs (HMRC) said Monday.
All VAT-registered businesses must use MTD for VAT for their first VAT return starting on or after 1 April 2022.
HMRC revealed that nearly 1.6 million taxpayers had joined MTD for VAT as of December 2021 with more than 11 million returns successfully submitted. Around a third of VAT-registered businesses with taxable turnover below £85,000 have voluntarily signed up to MTD for VAT ahead of April 2022.
“Businesses using MTD are saving time on their tax affairs, streamlining their processes and boosting their productivity as a result,” Lucy Frazer, Financial Secretary to the Treasury, commented. “Our first move towards a modern, digital tax service – MTD makes it easier for businesses to get their tax right first time.”
HMRC claimed that MTD is succeeding in its central aims of reducing errors, while also making it faster to prepare and submit returns, and boosting productivity for businesses. New research, conducted by HMRC and peer reviewed by independent academics, shows MTD is likely to have generated increased revenue through reducing errors in both 2019 and 2020.
The agency urged the businesses to use the time left to choose the software that is right for them, whether that is one of the simple free options available, or a more advanced product for those with more complex affairs.
There are a range of compatible software products available for MTD for VAT, allowing businesses to choose which tools they use to run their business and tax affairs. A list of software compatible with MTD for VAT, including free and low-cost options, can be found here.
Agents can sign up on behalf of a business, although businesses remain responsible for meeting their VAT obligations. Those who do not join may be charged a penalty for failure to do so.
Some VAT-registered businesses may be eligible for an exemption from MTD, if it is not reasonable or practicable for them to use digital tools for their tax. If a business has previously been granted an exemption for VAT online filing, this will carry over to MTD VAT requirements. More information on whether an exemption may apply can be seen here.
Since April 2019, businesses with a taxable turnover above £85,000 have already been required to follow MTD. In July 2020, it was announced that all VAT-registered businesses must file digitally through MTD from April 2022, regardless of turnover.
