Extension of Making Tax Digital for VAT

The next round comes in from 1 April this year, which will require all VAT registered businesses, regardless of turnover, to submit their VAT returns via MTD compliant software.

Who is likely to be affected These changes will apply to the approximately 1.1m VAT registered businesses with taxable turnover below the current VAT threshold that are not currently required to operate Making Tax Digital (MTD) for their VAT reporting and record keeping obligations.

General description of the measure MTD and its extension forms a crucial building block in the government’s 10-year strategy to make the tax system more resilient and effective, to boost business productivity, and support taxpayers.

These changes extend MTD requirements to smaller VAT businesses from April 2022. They build on the successful introduction in April 2019 of MTD for those VAT businesses with taxable turnover above the VAT threshold.

There is a growing body of evidence, from research and insights from taxpayers within MTD for VAT, which demonstrates that MTD is securing a range of benefits for those that use it in practice.

These benefits include reducing or eliminating paper-based or manual processes through use of software and an integrated approach to business administration and tax, allowing for greater accuracy in tax returns. This reduces the time businesses spend on administration, providing businesses more time to maximise business opportunities, productivity and profitability. MTD’s intention is that, for the majority of businesses, tax will be made easier to get right and harder to get wrong.

About a quarter of VAT registered businesses below the VAT threshold have voluntarily chosen to join MTD, demonstrating that a modern, digital approach to managing tax can work for businesses of every size.

MTD aims to tackle that part of the tax gap caused by error and failure to take reasonable care, by removing opportunities to make certain types of mistakes in preparing and submitting tax returns.

Under MTD, businesses must keep digital records and use third-party software to submit their tax returns to HMRC. Under the changes, those who do not already keep their records digitally will need to start doing so for their VAT obligations. The process of then sending returns to HMRC will become more straightforward, with their returns generated and sent directly from the software they are using to keep their records.

The software these businesses use must be capable of receiving information from HMRC digitally via HMRC’s Application Programming Interface (API) platform.

For more information or advice, please contact Burgess Hodgson via info@burgesshodgson.co.uk