From 1 April 2022, making tax digital (MTD) for VAT will be applied to all VAT-registered entities, including those below the VAT threshold. Previously, MTD for VAT only applied to VAT-registered entities making supplies above the VAT threshold (currently £85,000).
There are some digital exclusion exemptions that may apply, i.e. where “it is not reasonable or practical for you to use computers, software or the internet”, but otherwise, everybody registered for VAT will need to comply with the rule changes from 1 April 2022.
MTD will apply for your first VAT return period that starts on or after 1 April 2022. This means the first quarters to be prepared as MTD compliant will be those ending 30 June 2022, 31 July 2022 or 31 August 2022, or the month to 30 April 2022, if monthly returns are prepared.
VAT records will be required to be maintained in Excel spreadsheets or another form of digital software, e.g. Xero or Sage. You will no longer be able to type the VAT numbers into the VAT return in your government gateway account.
If it is not possible to submit the VAT return directly from your software to HMRC, you will either need to invest in some bridging software to make the digital link to HMRC, or you can provide the information digitally to Hazlewoods so that we can undertake the filing on your behalf.
It is important that you sign up for MTD at the right time. If the business does not pay by direct debit, it should sign up at some point after the last manual return is submitted and payment is made, but at least three days before the MTD return is due. If the business pays by direct debit it would be advisable to wait five days after the last manual return is due and at least seven days before the first MTD return is due.
There is no ‘soft-landing period’ this time, as was the case when MTD was first introduced. You will need to be ready at the start of your relevant VAT return period, i.e. by 1 April 2022, 1 May 2022 or 1 June 2022 depending on the stagger of your VAT quarters. The Government has introduced an initiative to help businesses purchase software to maintain their records. The scheme is only available to incorporated businesses with between five and 249 employees. For the full eligibility terms and more details, click here.
Many of our clients are already MTD compliance but if you would like to check or have any questions on how this affects you please get in touch with your usual accounts team contact.