HMRC’s Making Tax Digital for VAT has already made VAT returns simpler for businesses and will be expanding to impact more businesses on 1 April 2022. If your business is VAT registered, here’s a summary of the changes and what you can do to be prepared.
In this blog you’ll find information on:
What MTD is
What the changes are
And how you can prepare
What’s Making Tax Digital?
Making Tax Digital (MTD) is a government scheme designed to make it easier for people and businesses to track their tax by keeping and submitting digital records.
Since 2019, VAT-registered businesses with a taxable turnover above the VAT registration threshold (currently £85,000) have needed to keep their records digitally and provide their VAT return information to HMRC through MTD-compatible software, like FreeAgent, Xero and Quickbooks.
The move to digital tax submission has already benefited small businesses by making, preparing and submitting returns faster. It’s also made it easier to ensure you are getting your tax right.
In April 2022, a new stage will be introduced. MTD for VAT will apply to all VAT-registered businesses, regardless of turnover. If your business is VAT-registered you will be required to:
store your business records digitally
send your VAT returns to HMRC through MTD-compatible software
These changes are effective from a business’s first VAT return period starting on or after 1 April 2022.
For example, if you file your VAT returns quarterly and you have a VAT return period finishing on 30 April 2022, the first VAT return you’ll need to file through MTD is the one that finishes on 31 July 2022.
The ‘soft landing period’ – or phased introduction for businesses with taxable turnover over £85,000 – is also coming to an end. If your business falls in that group and you haven’t signed up yet, you need to do that as soon as possible.
How to prepare
Find software that is compatible with Making Tax digital
Making tax digital requires you to use software to keep digital records and submit your tax returns. FreeAgent MTD for VAT-compatible accounting software is free with a Mettle account (eligibility criteria applies).
Keep digital records starting from 1 April 2022 (or the start of your VAT period)
Sign up and submit your VAT return through MTD
If you are VAT registered and have not yet signed up to Making Tax Digital for VAT, you should do so now to ensure you’re ready in time for the April 2022 deadline. You can find more information on how to sign up here.