Making Tax Digital extended to all VAT-registered businesses

HM Revenue & Customs (HMRC) has confirmed that Making Tax Digital (MTD) will be extended to all VAT-registered businesses from April 2022.  Changes will apply to the approximately 1.1m VAT-registered businesses with taxable turnover below the current VAT threshold.

The move comes as part of the Government’s long-term strategy intended to make the tax system more resilient and effective, to boost business productivity, and support taxpayers.  This strategy began in 2019 with the introduction of MTD VAT.

 

MTD VAT

Under current rules, businesses whose turnover is above the VAT threshold of £85,000 are required to keep digital records and submit VAT returns through specialist digital systems.

The measures aim to reduce the time businesses spend on administration, in theory thereby providing more time to maximise business opportunities, productivity, and profitability. MTD’s stated intention was that, for most businesses, tax would be made easier to get right and harder to get wrong!

 

Extending MTD

From April 2022, MTD will be extended to all businesses who charge VAT, irrespective of whether they hit the VAT threshold, thereby including those voluntarily registered for the tax.

As it currently stands, around a quarter of businesses who will become obliged to join MTD in 2022 have already done so, voluntarily.

Those yet to switch will need to start keeping digital records and use third-party software to submit their tax returns to HMRC, causing upheaval for those businesses which do not already keep their records in digital format.

 

Further Extensions

The Government’s move towards digital tax will eventually see all kinds of taxes being both reported and paid, using digital accounting software.  From 2024, MTD will be further extended to all taxpayers who file self-assessment tax returns for business or property income worth over £10,000 annually.

HMRC anticipates that once businesses have overcome the changes to processes, they will see a reduction in errors and find tax management simpler.  This, in turn, should free up time that will, in theory, increase productivity.

It is also hoped that these changes will have a positive impact on agents acting for businesses, opening the door for those agents to provide a wider range of services to a larger client base.

 

Further Information

The policy paper for MTD can be found on the HMRC website and further details about digital records and software can be found elsewhere on the Briars International Business Blog,

If you’re unable to use computers, software or the internet due to a disability or as a result of where you live, you may be able to obtain exemption from adopting the new systems.  You may also apply for exemption if you object to using computers on religious grounds. Each claim to not adopt the new systems will be assessed on a case-by-case basis and you can apply for an exemption here.

If you have any other questions relating to Making Tax Digital or VAT, please feel free to contact Briars.