From 1 April 2022, all VAT-registered businesses must use Making Tax Digital (MTD) for VAT for their first VAT return starting on or after 1 April 2022.
What changed for Making Tax Digital on 1 April 2022?
Previously only VAT registered businesses with taxable turnover over £85,000 had to file their VAT returns through Making Tax Digital.
However, from 1 April 2022 the Making Tax Digital rules have been expanded to include all VAT-registered businesses, irrespective of turnover – greatly increasing the number of businesses now required to meet Making Tax Digital filing requirements.
What does Making Tax Digital mean for our business?
Under Making Tax Digital, VAT-registered businesses must keep digital records and provide their VAT return information to HMRC through Making Tax Digital compatible software.
So, unless you decide to cancel your VAT registration (which you can do if you expect your taxable turnover to be less than the de-registration threshold of £83,000 in the next 12 months), you will need to comply with the Making Tax Digital for VAT rules.
How do we prepare for Making Tax Digital for VAT?
1. Review your current recordkeeping arrangements
For those businesses who already use compatible accounting software (such as QuickBooks Online or Xero) this may mean little change to their everyday recordkeeping.
However, for those using spreadsheets or manual records, this may have a greater impact on how they previously made kept business records. You may need to implement new software or select a bridging software that enables your VAT return to be digitally filed.
2. Store the required digital records
The data that must be stored digitally includes:
- your business name, address and VAT registration number
- the VAT accounting schemes you use
- VAT on goods and services you supply (everything you sell, lease, transfer or hire out)
- VAT on goods and services you receive (everything you buy, lease, rent or hire)
- any adjustments you make on a VAT return
- the ‘time of supply’ and ‘value of supply’ for everything you buy and sell
- the rate of VAT charged on goods and services you supply
- reverse-charge transactions – where you record the VAT on both the sale price and the purchase price of goods and services you buy
- total daily gross takings if you use a retail scheme
- items you can recover VAT on if you use the Flat Rate Scheme
- total sales, and the VAT on those sales, if you trade in gold and use the Gold Accounting Scheme
3. Determine when you need to sign up and make your first Making Tax Digital VAT return
When you need to sign up and submit you’re your VAT return via Making Tax Digital depends on what your VAT quarters are and whether or not you pay your VAT bill by Direct Debit, see the table below:
| VAT quarters | First VAT return under MTD rules | Sign up period (if do not pay VAT by Direct Debit) | Sign up period (if pay VAT by Direct Debit) |
|---|---|---|---|
| June, September, December and March | Quarter ended 30 June 2022 | 8 May 2022 – 4 August 2022 | 13 May 2022 – 31 July 2022 |
| July, October, January and April | Quarter ended 31 July 2022 | 8 June 2022 – 4 September 2022 | 13 June 2022 – 31 August 2022 |
| August, November, February and May | Quarter ended 31 August 2022 | 8 July 2022 – 4 October 2022 | 13 July 2022 – 30 September 2022 |
Who is exempt from Making Tax Digital for VAT?
In some, exceptional cases, VAT-registered businesses may be eligible for an exemption from Making Tax Digital. These might include reasons such as age or disability, you live in a remote location with no internet, you object to computer use on religious grounds or for other reasons that make MTD unreasonable or impractical.
In each instance you must notify HMRC who will consider your case individually. You should note that if a business has previously been granted an exemption for VAT online filing, this will carry over to Making Tax Digital for VAT requirements.
Are there penalties for not complying with Making Tax Digital for VAT?
HMRC have the power to issue penalties to VAT registrations not complying with the digital records requirements, digital links requirements, or for not signing up to Making Tax Digital within the correct timeframe.
A new ‘points-based’ penalty system will be launched on 1 January 2023. In the meantime, the current system is likely to apply for those joining Making Tax Digital for VAT. This includes a surcharge depending on how many times you miss a VAT payment and penalties issued for careless or deliberate mistakes with your VAT return.
How is Making Tax Digital likely to change in the future?
Under Government proposals, it is expected that the Making Tax Digital requirements will be expanded in future, to include corporation tax for businesses and income tax for individuals under the self-assessment regime. This is currently in the consultation phase.
How can we help with Making Tax Digital?
Our team can assist you by:
- Advising on the options available for digital record keeping and the best solution for your business.
- Setting up your software including training and integrations with other systems that you use.
- Registering your business for Making Tax Digital for VAT.
- Completing VAT return submissions on your behalf using our bridging solution.
Please contact us to discuss how we can assist your business.
Award-winning chartered accountants offering tax, audit and advisory services.