From April 2022, All VAT-registered small businesses with a taxable turnover of more than £85,000 will have to comply with the latest MTD legislation. HMRC has issued guidance for these businesses and urged them to sign up for MTD for VAT before it becomes mandatory. So where do SMEs need to start to ensure they have the right protocols and processes in place?
How to prepare
When businesses are preparing for Making Tax Digital (MTD), there are two main things that they need to do.
Firstly, they need to ensure that their VAT records are MTD compliant, with accurate information for areas such as the rate of VAT charged on services and goods and any VAT accounting schemes you use. HMRC have a full list of the records you must keep digitally, which should be checked carefully.
Secondly, businesses must also make sure they are using HMRC-compatible software to file their VAT returns.
Opportunities vs burdens
The switch to MTD has the potential to reduce administrative burdens, especially for larger companies. This will enable them to focus on the strategic running of the business, while minimising the risk of errors and associated HMRC penalties. Smaller businesses may struggle to see the long term business benefits of MTD, as the initial costs and challenges of compliance can mask this.
Alongside the expansion of MTD, HMRC are also making changes to the way VAT penalties are administered. Even though many businesses still have a widespread lack of awareness about the VAT penalty regime, some could argue that the new regime is fairer, as it is a points-based system. This means it is far less likely that businesses will be penalised heavily for making simple mistakes.
The implementation of MTD marks the first step towards a closer disclosure of information between businesses and tax authorities, following in the footsteps of other global tax jurisdictions. In the long term, this should make the whole procedure more efficient for everyone, however, the benefits are not always immediately clear to businesses.
Key dates to remember
1 April 2022: MTD for all VAT registered businesses must sign up, regardless of what they earn.
January 2023: this is the new implementation date for new late VAT penalty system that is points-based
April 2024: this will be the introduction of a second stage of MTD for income Tax Self-Assessment (ITSA)
FOR MORE INFORMATION ON MTD, GET IN TOUCH WITH SIMON ARMSTRONG
