ChrisGoodfellowAll VAT-registered businesses, no matter how small, must be compliant with the latest Making Tax Digital (MTD) rules from April to avoid penalties from HMRC.
As of January, the latest data from HMRC shows that only a third of VAT-registered businesses with taxable turnover below £85,000 have signed up to MTD for VAT ahead of the April 1 mandate– despite warnings that businesses may face a financial penalty.
Under new rules, VAT-registered businesses have only weeks to ensure they have functional compatible software and have signed up for MTD on the HMRC website.
Businesses are only mandated from their first full VAT period starting on or after the 1st April, so if your return is due at the start of April it doesn’t need to be MTD compliant and you have time to get everything ready.
New rules for VAT
All VAT-registered businesses are legally required to maintain digital records and submit their VAT returns digitally via HMRC-recognised functional compatible software, regardless of turnover from April 2022 onwards.
Some businesses might be exempt from MTD. To find out more, visit the HMRC website for the latest advice on MTD exemptions.
If you already pay your VAT bill by Direct Debit, you should avoid signing up for MTD too close to the date that your return is due as you could be charged twice.
If you do not pay by Direct Debit, sign up at least three days before your return is due.
Digitalisation of the tax system
HMRC began the first phase of MTD In April 2019. This required VAT-registered businesses with taxable turnover above £85,000 to submit their VAT returns via MTD-compliant software, rather than the Government Gateway.
In July 2020, it was announced that all VAT-registered businesses must file digitally through MTD from April 2022, regardless of turnover.
HMRC says the new rules are designed to help businesses eliminate common errors and save time managing their tax affairs, with the overall goal of digitalising the UK tax system.
Joanna Rowland, HMRC’s director general for transformation, said: “MTD is fundamental to the delivery of a trusted and modern tax system, making it easier for businesses to get their tax right and supporting the UK to go digital.
“By signing up for MTD, we expect most businesses to experience long-term benefits, including reduced errors and time saved in managing their tax affairs.”
Accounting software from The Pitch partner Sage can help you get MTD compliant – and make managing your finances easier. Visit Sage’s hub on Making Tax Digital to find out more.
Karina Kundzina
