Making tax digital (mtd for vat)

February 28, 2022

The most significant development which has been driven by HMRC in recent years is the introduction of the ‘Making Tax Digital’ (MTD) programme, which to date relates only to VAT – with other business taxes e.g. Income tax and Corporation tax etc., to follow in due course !

Any VAT registered businesses that fail to sign up under the MTD regime will be subject to penalty(ies) for the failure to do so !!

Find out more below!

WHAT IS ‘MAKING TAX DIGITAL’ (MTD)?

The most significant development which has been driven by HMRC in recent years is the introduction of the ‘Making Tax Digital’ (MTD) programme, which to date relates only to VAT – with other business taxes e.g. Income tax and Corporation tax etc., to follow in due course

This MTD programme is a key part of the Government’s plan to move to a fully digital tax system, and at the same time is designed to help businesses eliminate common errors while saving time managing their VAT affairs.

It is also, of course, aimed at reducing VAT losses and ensuring more tax revenue is received by HMRC!

Until 2022, the MTD requirements have only been applicable to VAT-registered businesses with turnover over £85,000 ONLY, however despite that, almost a third of such businesses have in practice already voluntarily signed up to MTD for VAT.

Making Tax Digital – WHAT IS CHANGING FROM 1ST APRIL 2022?

As and from 1st April 2022, ALL VAT registered businesses will be required to have signed up to MTD for their FIRST VAT return starting on or after that date. Any VAT-registered businesses that fail to sign up under the MTD regime will be subject to penalty(ies) for the failure to do so !!

However, at this point and with more than 2 years of experience in using MTD for VAT with many of our own Clients, it could actually be considered a competitive disadvantage for a business NOT to follow the MTD regime – in addition to it being a legal requirement in any case.

Given that it requires businesses to move away from Excel and/or any manual accounting system, to a system based on the use of Xero and/or Quickbooks etc. for their ‘day to day’ bookkeeping, this is precisely what we would advise clients to do in any case

WHAT IS REQUIRED TO ACTION A SIGN UP FOR MTD FOR VAT

Under the Making Tax Digital for VAT regime, VAT-registered businesses are required to:

1. Submit their quarterly VAT returns directly to HMRC using their accountancy software ONLY e.g. Xero or Quickbooks.

2. A new HMRC ‘Making Tax Digital’ account MUST be created

3. This online account will be linked directly with Xero to Quickbooks – to allow the VAT returns to be submitted!

4. Ensure that your Accountant has been appointed as an Agent under the MTD scheme (where this is applicable)

Businesses taking action to sign up in April 2022 (for a March 2022 quarter business) can only sign up either

– at least five days after their last non-MTD VAT return deadline date e.g. 12th May 2022,

– no less than seven days before the first MTD VAT return deadline date e.g. 1st August 2022.

Accountants (including Sakura) are able to simplify the process for their Clients and can sign them up directly for the MTD regime – once they are the VAT Agent with HMRC for those clients in the first place!

MTD for VAT – Required ‘Sign Up’ Dates

– 1 April 2022 – If the previous VAT quarter ended 31 March 2022

– 1 May 2022 – If the previous VAT quarter ended on 30 April 2022

– 1 June 2022 – If the previous VAT quarter ended 31 May 2022

MTD for VAT – Return Submission Deadlines

– 7 August 2022 – 1 April 2022 VAT quarter

– 7 September 2022 – 1 May VAT quarter

– 7 October 2022 – 1 June 2022 VAT quarter

WHAT HAPPENS NEXT FOR MTD ??

HMRC has already announced that further implementation of the MTD programme will result in

1. sole traders and landlords being required to sign up for MTD for Income tax from April 2024

2. limited companies are required to sign up for MTD for Corporation tax from April 2026!

Feel free to contact the Sakura Team if you want additional advice or support with MTD for VAT or if you are having problems with your VAT settings/VAT reports in Xero or Quickbooks accountancy software.