Making Tax Digital (MTD) for VAT has become mandatory for VAT-registered businesses on 1 April 2022.
All VAT-registered businesses must use Making Tax Digital (MTD) for VAT for their first VAT return starting on or after 1 April 2022 although they will not have to pay VAT via MTD until July 2022.
Making Tax Digital (MTD) for VAT helps taxpayers get their tax returns right by reducing common mistakes as well as saving time managing their tax affairs and is a key part of the overall digitalisation of UK tax.
Evidence shows that Making Tax Digital (MTD) for VAT is succeeding in its central aims of reducing errors, while also making it faster to prepare and submit returns, and boosting productivity for businesses. New research, conducted by HMRC and peer-reviewed by independent academics, shows that Making Tax Digital (MTD) for VAT is likely to have generated increased revenue by reducing errors in both 2019 and 2020.
VAT-registered businesses that have not yet signed up to Making Tax Digital (MTD) for VAT should do so now. All VAT-registered businesses must use MTD for VAT for their first VAT return starting on or after 1 April 2022. We have covered this in further detail here.
Agents can sign up on behalf of a business, although businesses remain responsible for meeting their VAT obligations. Those who do not join may be charged a penalty for failure to do so.
There is a range of compatible software products available for Making Tax Digital (MTD) for VAT, allowing businesses to choose which tools they use to run their business and tax affairs. A list of software compatible with MTD for VAT, including free and low-cost options, can be found on GOV.UK.
HMRC understands that some businesses will find it easier to comply with MTD than others. For those who need more help and support on signing up for MTD, HMRC is running a series of webinars.
Some VAT-registered businesses may be eligible for an exemption from Making Tax Digital (MTD) for VAT if it is not reasonable or practicable for them to use digital tools for their tax. If a business has previously been granted an exemption for VAT online filing, this will carry over to MTD VAT requirements. Go to GOV.UK for more information on whether an exemption may apply.
How to sign up for MTD VAT
To sign up to MTD VAT, businesses, or an agent on a businesses’ behalf, need to:
- Step 1: Visit GOV.UK and choose MTD-compatible software
- Step 2: Keep digital records starting from 1 April 2022 or the beginning of their VAT period
- Step 3: Sign up and submit their VAT Return through MTD
Businesses should ensure that they sign up to MTD at least 5 days after their last non-MTD VAT return deadline date, and no less than 7 days before their first MTD VAT return deadline date to avoid paying for their VAT twice.
Who is exempt from Making Tax Digital for VAT
You do not need to follow the rules for Making Tax Digital (MTD) for VAT if HMRC is satisfied that:
- it’s not practical for you to use digital tools to keep your business records or submit your VAT Returns – this may be due to reasons such as age, disability or location
- you (or your business) are subject to an insolvency procedure
- your business is run entirely by practising members of a religious society (or order) whose beliefs are incompatible with using electronic communications or keeping electronic records
- you’re already exempt from filing VAT returns online
Examples of businesses that are exempt from MTD for VAT
You’ll be exempt if it’s not practical for you to keep records digitally due to:
- your location – for example, if you cannot get internet access at your home or business premises, and it’s not reasonable for you to get internet access at another location
- a disability – for example, if you cannot use a computer, tablet or smartphone for the frequency or amount of time it takes to keep digital records for your business
You might not be exempt if you:
- believe you should be exempt purely because of your age – HMRC will consider how your age and circumstances impact your ability to follow the rules for Making Tax Digital.
- believe you should be exempt because you’re unfamiliar with the relevant software – HMRC will take into account how much you use (or intend to use) digital devices for other purposes, and if it’s reasonable for you to learn how to use Making Tax Digital software
- consider yourself to be a practising member of a religious society or order whose beliefs are incompatible with the use of electronic communications, but you already file online and use a computer or smart device for other business or personal uses
You will not get an exemption solely due to any extra effort, time or cost that may be needed when transitioning to Making Tax Digital, where HMRC considers it reasonable. For example, if you need to choose and buy new hardware or software, or if you need to learn to use them. However, HMRC will take any extra effort, time and cost into account in their overall assessment.
How to apply for an exemption
You can apply if it’s not reasonable or practical for you to use computers, software or the internet to follow the rules for Making Tax Digital (MTD) for VAT.
This could be because:
- of your age, a disability or where you live
- you object to using computers on religious grounds
- of any other reason why it’s not reasonable or practical
HMRC will consider each application on a case by case basis.
To apply, call or write to HMRC. You’ll need:
- your VAT registration number
- your business name and address
- details of how you currently file your VAT Return
- the reason you think you’re exempt from Making Tax Digital
- authorisation from the business (if you’re applying on someone’s behalf)
You’ll get a letter with HMRC’s decision. Until then, continue filing VAT Returns the way you usually do.
How can MCL Accountants help?
Contact MCL Accountants on 01702 593 029 if you have any queries on Making Tax Digital (MTD) for VAT changes from April 2022 or if you need any assistance with the preparation and submission of your business accounts or self-assessment tax returns to HMRC.Tags: Making Tax Digital