The scope of Making Tax Digital for VAT will expand in 2022.

Since April 2019, 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, so including those with a turnover below the VAT threshold.

HMRC is sending letters to VAT-registered businesses below the £85,000 threshold about the upcoming Making Tax Digital rules effective from April 2022. If you receive this letter, or think you will now fall into this MTD regime, please contact the Menzies Outsourcing team @ systemsadvisory@menzies.co.uk to discuss your situation and determine your options for getting MTD compliant.

Put simply, Making Tax Digital involves using compatible software to manage your tax affairs with HMRC. Note that even if a voluntarily VAT Registered business is already using accounting software to file VAT digitally, they may still need to formally enrol for MTD and connect their software to HMRC’s MTD VAT portal rather than the connection to the government gateway they will have been using to submit return’s to HMRC.

MTD RoadMap

The extension of the MTD for VAT legislation is the next step along HMRC’s MTD RoadMap, which is laid out in basic terms (and of course remains subject to changes and delays) as follows:

Currently

VAT-registered businesses with VATable sales exceeding £85,000 must follow MTD rules.

April 2022

VAT-registered businesses with VATable sales below £85,000 must follow MTD rules.

April 2024

Making Tax Digital for Income Tax will be introduced. This will require self-employed businesses and landlords with annual business or property income above £10,000 to follow the rules for MTD for Income Tax Self Assessment from 6th April 2024. Partnerships with individuals as partners will have to follow the rules from April 2025. (Limited liability partnerships (LLPs) and partnerships with corporate partners will be required to join at a future date yet to be announced.)

*We will be issuing information, updates and guidance on MTD for Income Tax (MTD-ITSA) in due course!*

2026 onwards

MTD for Corporation Tax is expected to be the next phase in the initiative. However, HMRC has advised that MTD for Corporation Tax rules won’t come into effect until at least 2026.

Further guidance and information on MTD is available from the following sources:

• This HMRC webinar provides an overview of Making Tax Digital, including digital record keeping, compatible software, how to sign up and submitting VAT returns directly.  Register here

• You can also view some short videos on HMRC’s YouTube channel including:

1. How to sign up for Making Tax Digital for VAT?
2. Making Tax Digital for VAT – what is compatible software?
3. Keeping VAT records digitally

• If you currently prepare and file your own VAT return whether on Xero or through other means, you can register for Xero’s Making Tax Digital for VAT webinar to get an explanation of the benefits of Xero, as well as what MTD for VAT means and how to prepare and submit MTD VAT returns in Xero after April 2022.

If you have any further queries or complex VAT scenarios, please get in touch.

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