Making Tax Digital becomes mandatory in 2022

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The initial Making Tax Digital (MTD) scheme launched 1st April 2019 and meant that UK businesses above the VAT threshold of £85,000 were required to submit VAT returns using accounting software.

Since its introduction, there have been more updates to the scheme that affects those who have been voluntarily registered for VAT. These updates begin in April 2022.

If your business has been voluntarily registered for VAT, you’ll have to change how you make VAT submissions and how you file VAT Returns. Additionally, you will need to switch to digital record keeping for your VAT accounting.

This is because Making Tax Digital for VAT will become mandatory for all businesses registered for VAT.

If you are not sure if this affects you, do not worry as HMRC stated it will be notifying affected businesses of this change. If you would like more information on MTD and VAT take a look at our previous articles

Voluntary VAT and MTD

The new MTD requirements for voluntary VAT filers begins in April 2022. Presently, businesses with a VATable turnover above the VAT threshold (currently £85,000) are required to register with HMRC for VAT. Those below this threshold are not required to register but many choose to do so. These are known as voluntary VAT payers or voluntary filers.

As part of the Making Tax Digital roll-out in April 2019, HMRC requested that all businesses above the VAT threshold kept records digitally and submitted their VAT Return using MTD-compatible software.

Voluntary filers had the option to sign up to MTD and submit their VAT return this way. But as of April 2022, this is no longer optional. It’s mandatory. All VAT-registered businesses – regardless of whether they’re above or below the £85,000 threshold – must become MTD-compliant.

This means:

  • Signing up for MTD for VAT. You can do this, or your accountant can do it for you. If you sign up yourself then you should still speak to your accountant in case you need to link the sign up to their systems.
    • Signing up will involve creating a new direct debit for VAT payments. You will need to be careful so that you avoid the old and new debits overlapping.
  • Keeping and preserving VAT records digitally for the first VAT period after April 2022, and all VAT periods after this.
  • Sending VAT Returns for full VAT periods after April 2022 to HMRC using MTD-compatible software (referred to as “functional compatible software” in the VAT Notice).

There is nothing software vendors can do about this change. HMRC announced in 2020 that all VAT filers, regardless of whether they’re above or below the VAT threshold, will need to comply with MTD for VAT.

Why switch to MTD for VAT now?

As the requirement to switch to MTD for VAT by April 2022 is defined by law, it will need to be actioned. But the good news is that the technology required to do so has been in use for years and is extremely reliable.

A benefit of MTD is that it encourages better record keeping and an integrated approach to VAT accounting. When done correctly, the move to MTD facilitates real-time views of accounting, so you can always see the state of your finances and enable improvements, such as automation.

Digital linking and MTD for VAT – What actually is it?

Digital linking is the act of ensuring your digital accounting records are transferred in a compliant way.

Typically, this means the data is transferred in an automated way from one system to another or within an application. But it can’t involve manual intervention or copying or cutting and pasting data from one place to another. However, HMRC does accept that there are certain scenarios where adjustments are still required to the nine box values of the VAT Return such as a partial exemption calculation. This can still be done manually without the need to record the calculation digitally.

If you would like to discuss Making Tax Digital and how these changes affect your Sage 200 system then please give us a call on 01332 959 008 or use the enquiry form.

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