Since April 2019, all VAT-registered businesses with a turnover above the VAT threshold have been required to keep VAT records digitally and send returns using Making Tax Digital (MTD) compatible software.
From April 2022, these requirements will apply to all VAT-registered businesses. All businesses must sign up, regardless of their turnover.
HMRC is sending letters out on the upcoming Making Tax Digital rules to VAT-registered businesses falling below the £85,000 threshold. If you receive this letter or are unsure if you fall into this new MTD regime, it is best to seek professional advice to determine your options for getting MTD compliant. You can contact the Menzies Outsourcing team at [email protected] to discuss your situation.
What does Making Tax Digital involve?
In simple terms, Making Tax Digital involves managing your tax affairs with HMRC using compatible software. Some businesses that are voluntarily VAT registered may still need to formally enrol for MTD if they are already using accounting software to file VAT digitally. They may also need to connect their software to HMRC’s MTD VAT portal (https://www.gov.uk/vat-record-keeping/sign-up-for-making-tax-digital-for-vat), rather than using the connection they have been using to submit returns to HMRC through the government gateway (https://www.gov.uk/vat-record-keeping/making-tax-digital-for-vat).
The extension of the MTD for VAT legislation is the next step along HMRC’s MTD RoadMap. The roadmap is laid out in basic terms (and, of course, remains subject to changes and delays) as follows:
- Currently, all VAT-registered businesses with VATable sales exceeding £85,000 must follow the MTD rules.
- From April 2022, all VAT-registered businesses with VATable sales below £85,000 must follow the MTD rules.
- From April 2024, Making Tax Digital for Income Tax will be introduced. This will require the following to follow the rules for MTD for Income Tax Self Assessment:
- self-employed businesses with annual property or business income above £10,000
- From April 2025, individuals in partnerships will have to follow the rules. HMRC are yet to announce the date for Limited liability partnerships (LLPs) and partnerships with corporate partners.
Keep an eye out for updates from with information, updates and guidance on MTD for Income Tax (MTD-ITSA).
It is important to seek further guidance and resources on this subject to make sure businesses are aware of the upcoming changes and processes. Below are some useful resources to gain a better understanding of Making Tax Digital:
HMRC’s YouTube channel has some useful short videos, including:
- How to sign up for Making Tax Digital for VAT?
- Making Tax Digital for VAT – what is compatible software?
- Keeping VAT records digitally
As Making Tax Digital for Businesses becomes mandatory over the coming years, preparation is key. Most businesses are already compatible through MTD for VAT. If you or your business is not ready, we would advise digitising as soon as you can, rather than waiting for your ‘enrolment date’.
There are significant benefits attached to cloud accounting and software, not least saving time and money. Alongside this, you will be ready and compliant ahead of the deadline. If you have any queries, contact me at [email protected].
Menzies is a top 25 leading firm of accountants, finance and business advisors that operate out of a network of offices across Surrey, Hampshire and London, providing our clients with easy access and local knowledge. Described as the ‘best performing firm outside of the top 10’ by Accountancy Magazine, Menzies has over 400 employees and an annual turnover of more than £40m.