Making Tax Digital (MTD) was designed by the government to help individuals and businesses accurately keep track of their tax liabilities in a more efficient and straightforward way. By assisting companies to get their tax correct first time, the £9 billion discrepancy that the Exchequer faces each year, could be eliminated.
In an ever increasing digitally driven world, many businesses are already using accounting software, interfacing with their customers electronically and carrying out their banking online. Thus, HMRC saw MTD as the next step in becoming more modern and more digitally integrated with businesses and eliminate the existing laborious paper-based processes.
Making Tax Digital (MTD) for VAT changes from April 2022 include mandatory requirements for all VAT-registered businesses from 1 April this year to file VAT returns digitally through MTD, regardless of turnover.
HMRC is now reminding businesses below the £85,000 threshold of the steps which they need to take to be ready for MTD for VAT changes from April 2022 Previously only VAT-registered companies with income over £85,000 had to file their VAT returns through MTD.
Businesses need to have signed up to MTD for their first VAT return starting on or after 1 April 2022. They may not be required to make their first submission via MTD until summer 2022 under the MTD for VAT changes from April 2022.
These MTD for VAT changes from April 2022 extend MTD requirements to smaller VAT businesses from April 2022. They build on the introduction in April 2019 of MTD for those VAT businesses with taxable turnover above the VAT threshold.
When must Businesses sign up to MTD
Businesses must sign up to MTD at least five days after their last non-MTD VAT return deadline date, and no less than seven days before the first MTD VAT return deadline date or the company may have to pay VAT twice.
MTD for VAT changes from April 2022 aims to tackle that part of the tax gap caused by error and failure to take reasonable care, by removing opportunities to make certain types of mistakes in preparing and submitting tax returns.
Under the new rules, it will be mandatory to keep digital records under MTD. This can be done through software. Where a business chooses to use bridging software, digital links must be in place to ensure that records are kept digitally as information is transferred between different platforms.
Those who do not sign up will be charged a penalty for failure to do so.