Making Tax Digital (MTD) is a key component of the Government’s plan to make it easier for self-employed individuals and businesses alike to keep on top of their tax affairs.
April 1st 2022, sees the next phase of MTD for VAT coming into force, altering the way small businesses must file accounts through the HMRC MTD system. Here’s a breakdown of the changes coming into effect and how you can prepare.
What are the Changes?
Since April 2019, businesses in the UK with a taxable turnover of more than £85,000 have had to follow the rules for Making Tax Digital and process their returns digitally.
Whilst VAT registered businesses who earn less than £85,000 were encouraged to do the same, it wasn’t a legal obligation, until now.
From April 2022, all business owners who charge VAT will need to comply with Making Tax Digital, (unless an exemption applies) including those who sit below the £85,000 threshold.
This means that from the first VAT period staring on or after 1st April 2022, all remaining VAT registered businesses not already operating using MTD software, must sign-up to MTD. Under the new legislation, these businesses must:
- Keep VAT records digitally – this includes things such as your business address and VAT registration number as well as any VAT accounting schemes you use. A full list of records which must be kept digitally is available on the Gov.Uk website.
- Submit VAT return information to HMRC through MTD compatible software – If you use more than one software package, these must be linked by your first VAT period on or after 1st April 2022.
This phase of Making Tax Digital for VAT is estimated to affect approximately 1.1 million small businesses throughout the UK.
How Can My Business Prepare?
Under the changes, those VAT registered businesses who do not already keep their records digitally, must start doing so from their first VAT period starting on or after 1st April 2022. Failure to comply may lead to financial penalties and interest charges. Ensuring your business is prepared ahead of the changes will make the transition to MTD as smooth as possible.
- Ensure your software is MTD compliant – Programmes such as Xero and Quickbooks are popular and user-friendly systems that are officially recognised by HMRC as MTD compliant.
- Train your staff – Ensure that your staff understand the businesses’ new obligations under the MTD changes and how it might impact their role.
- Speak to your accountant – If you use an accountant to manage your business’ finances, ask how they can support you in fulfilling your MTD obligations.
Under this initiative, the process of sending VAT returns to HMRC should become more straightforward, with all returns generated and sent directly from the MTD compliant software.
What are the Exemptions?
HMRC allows business owners to apply for an exemption from MTD if it is not reasonable or practical for the individual to use computers, software or the internet. Typically, this is due to age, disability, location, or religion and is considered on a case-by-case basis.
If you have already been granted an exemption from MTD, this will still apply after the changes on 1st April 2022. If you have not applied for an exemption, but think you might be eligible, guidance on how to apply can be found here.
Benefits of Making Tax Digital
There are many benefits to Making Tax Digital including reducing paper-based or manual processes through the use of software and adopting an integrated approach to admin and tax, allowing for more ease and greater accuracy when it comes to submitting tax returns.
This streamlined digital process can reduce time spent on administration and allow businesses to focus on other key areas such as improving customer experience and growing the business.
As well as reducing manual workload, digital software can provide businesses with real time management information so you can quickly and easily see how your business is performing and produce up-to-date cash flow forecasts and budgets.
Need a Hand?
If your business is affected by the changes coming to MTD for VAT and you need support meeting your MTD obligations, give us a call today on 0117 379 0810 for a free consultation.
- Spring Statement 2022 – Key Takeaways - April 29, 2022
- Making Tax Digital for VAT April 2022 – Are You Prepared? - March 29, 2022
- 2022 Current Covid Support - January 24, 2022
This post was written by Steph Roffey