On 1st April 2022 it becomes mandatory for all VAT registered businesses to register for Making Tax Digital (MTD) for VAT. This is a departure from the current rules where it is only compulsory for people or businesses with a turnover above the VAT threshold of £85,000. These current rules have been in place since 2019.

MTD is a crucial building block in the government’s 10-year strategy to make the tax system more resilient and effective, to boost business productivity, and support taxpayers. There are multiple benefits to MTD, including reducing or eliminating paper-based or manual processes through use of software and an integrated approach to business administration and tax, which allows for greater accuracy in producing tax returns.

Joanna Rowland, Director General for Transformation Group in HMRC, 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. We encourage businesses to explore digital record-keeping for their VAT affairs and use this time to choose the right software to support their business needs.”

As of December 2021, nearly 1.6 million taxpayers had joined MTD for VAT and successfully submitted more than 11 million returns. Out of all of the country’s VAT-registered businesses with taxable turnover below £85,000, a third of these have already voluntarily signed up to MTD ahead of 1st April.

What are the requirements?

MTD for VAT first came into effect on 1st April 2019 where it was required that all businesses and individuals with a taxable turnover above £85,000 must keep digital records and file VAT returns using MTD compatible software.

Two years on, many taxpayers will be an old hand at conforming to MTD rules. However, for those who will be impacted by the changes coming into effect in three months’ time, it may seem daunting. Help can be found online and HMRC is even running webinars to support people and businesses who will be affected by the new rules.

It is important to remember that while agents can sign up for MTD on behalf of their clients, the responsibility to meet the VAT obligations ultimately lies with the business or individual. Failure to comply with the new regulations could result in financial penalties.

Some VAT registered businesses may be eligible for an exemption from the MTD rules if it is not reasonable or practical for them to use digital software to complete their VAT returns. For instance, issues of remoteness, or religious beliefs. Information on how to apply for an exemption can be found here.

It is important to ensure that you are prepared for the coming changes. If you feel you need further guidance or advice on the requirements coming into effect soon, please feel free to contact our offices by email