Further roll out of Making Tax Digital (MTD) for VAT and other taxes

Published: Wednesday 29 July 2020

On 21 July, the Government published a 5 to 10-year vision for tax administration. This included its future plan for MTD which includes the extension of MTD for VAT to all VAT-registered businesses with effect from April 2022. Details of the document can be found here.

The requirements of MTD for VAT are that the business must:

  • maintain and preserve VAT records digitally;
  • provide information and returns digitally to HMRC from data held in those digital records and receive information from HMRC in the same way;
  • ensure that all data transfer or exchange within and between software programs, applications or products that make up functional compatible software must be affected by means of digital links where the information continues to form part of the digital records.

When MTD for VAT was first introduced in April 2019 for VAT-registered businesses trading above the VAT registration threshold of taxable supplies in excess of £85,000, a ’soft landing’ period was implemented in respect of the third requirement above, such that the existence of full digital links throughout the digital records was not compulsory until April 2020 (subsequently deferred until April 2021). However, the published document gives no indication of such a phased introduction applying to the extension of the MTD regime.

Presumably it will still be possible for businesses to apply for an exemption from the MTD requirements on the basis of impracticality due to age, disability, remoteness of location or any other reason, or by virtue of the membership of those running the business of a religious society or order whose beliefs are incompatible with using electronic communications or keeping electronic records.

The document also sets out the following plans in relation to extending MTD to other taxes:

  • The introduction of MTD for income tax self-assessment will commence, with businesses and landlords with income over £10,000 required to keep digital records and use software to update HMRC quarterly from April 2023.
  • HMRC will also begin consultations in the autumn on the detail of extending MTD to incorporated businesses with corporate tax obligations.

For more on the further roll out of MTD for VAT or if you have further queries as to how this affects your business, please get in touch with Julian Millinchamp at julian.millinchamp@hazlewoods.co.uk or 01242 237661.

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Julian Millinchamp
Julian Millinchamp
Indirect Tax Director
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