Making Tax Digital (MTD) for VAT is now being rolled out to all VAT registered businesses, regardless of turnover, from April 2022. Currently, only VAT registered businesses that make taxable supplies in excess of the £85,000 VAT registration threshold are required to comply with MTD rules.
What is Making Tax Digital?
Making Tax Digital (MTD) is an essential part of the UK government’s plans to make it easier for businesses and individuals to get their tax done correctly and keep updated of their affairs.
HMRC aims to transform tax administration by making it more effective, more efficient and easier for taxpayers to get their tax done correctly.
MTD can make it much easier for you to monitor tax and find out where records are different and don’t match. For example, if someone submits a return showing a VAT expense from your business, HMRC can look up your VAT return to ensure there is a matching sales invoice in your business.
Making Tax Digital affects all VAT registered businesses
From 1st April 2022, all VAT registered businesses will have to use MTD compatible software to file VAT returns for periods starting on or after 1st April 2022. Businesses are also required to keep the VAT record in digital form.
Individuals with annual businesses or property income greater than £10,000 a year will need to comply with the MTD rules for income tax from their next accounting period starting on or after 6th April 2023. This includes property landlords, traders and professionals.
Some businesses may want to deregister for VAT
The MTD extension may cause businesses who are VAT registered but below the threshold to deregister to avoid complying with MTD for VAT.
However, deregistering for VAT will not exclude you from MTD as the requirements to keep business records digitally will be introduced for income tax from April 2023.
Exemptions from Making Tax Digital
Businesses are exempt from the MTD rules if any of the following apply:
- It is not reasonably practicable for the business to use digital tools to keep their business records or submit VAT returns due to age, disability, remoteness of location or any other reason (referred to as digital exclusion)
- The business is subject to an insolvency procedure
- The 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.
If any of the above applies, the business has to claim an exemption from HMRC.
Business are automatically exempt from MTD and do not need to apply to HMRC if they are currently exempt from online filing or if their taxable turnover is below the VAT registration threshold.
Need help with Making Tax Digital (MTD)?
Whether you are self-employed or own a small business, we can help with your accounts and taxes to reach your business goals. To speak to one of our experts, contact us here.