Updated February 2022

Background

The Government’s Making Tax Digital Programme launched in April 2019 with its first scheme – Making Tax Digital for VAT.  To aid a smooth adoption, the Government introduced a gradual phasing in of eligible businesses.

Compliance with Making Tax Digital for VAT requires a business to keep digital records and use MTD-compliant software to file its VAT returns.

Prior to 1 April 2022, only those businesses with a taxable turnover above £85,000 had to follow the rules for Making Tax Digital for VAT.  From 1 April 2022, all VAT registered businesses must follow these rules regardless of turnover.

Affected businesses

This means that if a business’ taxable turnover is below the VAT threshold of £85,000 it should keep digital records from its first VAT return period that starts on or after 1 April 2022.

Businesses can sign up to MTD for VAT any time in the run up to 1 April 2022. It will however be mandatory for them to have signed up before their first VAT return period that starts on or after 1 April 2022.

Exemptions are available where it is not reasonable or practical for businesses to follow the MTD for VAT rules (for example due to disability or age). Businesses that are already exempt from filing VAT returns online will automatically be exempt from MTD for VAT, but any other must apply to HMRC for an exemption.

MTD for VAT Obligations

Under MTD for VAT, affected businesses have to:

• keep their records digitally
• use MTD-compatible software to submit their VAT returns
• have ‘digital links’ in place between the pieces of software used to carry out those functions.

The Government has published a list of the records a business must keep digitally to comply with MTD.  You can find it here: Gov.uk VAT Record Keeping

MTD-compliant Software

The first step towards MTD compliance is to ensure your business has the right software in place to meet its MTD requirements.   The Government publish a list of MTD-compliant software for businesses to evaluate.  You can find it here: Gov.uk Find software that’s compatible with Making Tax Digital for VAT

The choice very much depends on your business budget and operations.  It is worth assessing, however, whether your chosen software will work for both MTD for VAT and MTD for Income Tax Self-Assessment, which is due to be rolled out from April 2024.  Ideally, for cost-effectiveness long-term, you want a solution which covers both.

At Shipleys, we have links with many of the leading and compatible online software and have been helping businesses migrate over to the software and the necessary digital record keeping.

Signing up for the MTD for VAT service

Having instigated the compatible software in their systems, businesses will then need to sign up for HMRC’s MTD for VAT service at the right time. Remember, those joining MTD will find it applies to their first VAT period starting on or after 1 April 2022. Once a business signs up for MTD, all future returns need to be filed using MTD-compliant software.

Businesses can sign up directly for MTD for VAT, or use agents (like Shipleys) to do this for them.  Businesses can sign up directly via: HMRC Sign up for making tax digital.

To sign up, they will need:

• their business email address
• a Government Gateway user ID and password – if they do not have a user ID, they can create one when they use the service
• their VAT registration number and latest VAT return
• their National Insurance number if they are a sole trader
• their company registration number and Unique Taxpayer Reference if they’re a limited company or registered society
• their Unique Taxpayer Reference and the postcode where they’re registered for Self Assessment if they’re a general partnership
• their Unique Taxpayer Reference, the postcode where they’re registered for Self Assessment and their company’s registration number if they’re a limited partnership

Getting the timing right

If a business already pays its VAT by Direct Debit, it’s important not to sign up to MTD too close to the date your return is due, or you may pay twice.

To avoid this, do not sign up less than:

• 7 days before your return is due
• 5 days after your return is due

If you do not pay by Direct Debit, sign up at least 3 days before your return is due.

We recommend that businesses should check the status of their Direct Debit after they have signed up for MTD.  This is because we have observed some instances where the Direct Debit has been cancelled and not reinstated.  As far as we can tell the MTD sign up system cancels the Direct Debit and HMRC expect the business to reinstate it.

Penalties

With the new VAT penalty regime now delayed until 1 January 2023, the default surcharge rules will continue to apply for the first few periods businesses adjust to being part of the MTD regime.  Be mindful the default surcharge is stricter than the new penalty-points regime.

Can we help?

Our specialist VAT team have helped many businesses migrate to digital record keeping and comply with Making Tax Digital for VAT.  If you have questions or need help getting your business ready, please do contact them at email: vat@shipleys.com or call one of the Shipleys’ offices.

Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary, if you would like advice or further information, please speak to your usual Shipleys contact.

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