Let’s be honest – most business owners need tax changes like a hole in the head. But whether you like it or not, Making Tax Digital (MTD) is happening right now, so it pays to be prepared. From 1 April 2022, all businesses are required to follow the new rules, so we’re here to answer your most common MTD questions to simplify the transition and make your compliance a breeze.
Your Making Tax Digital Questions Answered
Is Making Tax Digital only for VAT?
The good news is that it is for now. The bad news is that this is only the first phase of the Making Tax Digital initiative, with MTD for Income Tax being introduced from April 2024 and MTD for Corporation Tax coming in from around April 2026 (although the exact date has yet to be confirmed).
What do I have to do to comply with Making Tax Digital for VAT?
Making Tax Digital for VAT means that you’re now going to need to use accounting software to submit your VAT returns. Is the government going to pay for that software? you ask. No, of course it’s not. So, your first job is to find low cost, easy to use and MTD-compliant accounting software.
Once you have your software in place, you’ll need to use it to keep and maintain your VAT accounting records, create VAT returns and send those VAT returns to HMRC. Although it might be a pain now, MTD is supposed to make your VAT obligations quicker and easier to comply with. And using software to automate your returns rather than relying on spreadsheets will do just that.
Is Making Tax Digital only for VAT?
Even if you’re happy with the system as it stands, as of 1 April 2022, MTD became a legal requirement for all VAT-registered businesses in the UK. Up until this point, it was only a legal requirement for firms that had a taxable turnover that exceeded the VAT threshold, which currently stands at £85,000.
The only exemptions are for people who cannot use computers, software or the internet due to reasons such as their age, a disability, religious grounds or the fact that they live in a remote location. HMRC may also consider other grounds that make MTD for VAT impractical. If you want to apply for an exemption, you can do so by calling HMRC on 0300 200 3700 or by writing to them at BT VAT, HM Revenue and Customs, BX9 1WR, United Kingdom.
What do I need to do to comply with the MTD for VAT rules?
We’ve already discussed the requirement for all businesses to create and submit their VAT returns using MTD compliant software, with those returns usually submitted every three months. But how can you find compliant software and what else do you need to do?
- You can visit the government’s website to search for software packages that are compliant with Making Tax Digital for VAT.
- You should then create an agent services account, which is different to your HMRC online services account. You can copy across your existing VAT client authorisations from your HMRC services account.
- The next step is to sign up for MTD for VAT. You’ll need your VAT certificate, your business entity type, your business email address and your contact details. You’ll also need your National Insurance number if you’re a sole trader or your UTR if you run a limited company.
- The final step is to authorise your software. That sounds more complicated than it is. Your MTD-compliant software will provide simple instructions to help.
When must I register for MTD for VAT?
If you’re already VAT registered, you can register for MTD for VAT at any time by following the steps described above. If you’re registering to pay VAT for the first time then your enrolment will be automatic.
If you pay your VAT by direct debit, you should sign up for MTD for VAT no less than seven days before your first VAT return is due. If you don’t pay by direct debit, you must sign up at least three days before your VAT return is due.
So there you have it – your five top MTD for VAT questions answered. And once your business is primed and ready for MTD, you can read about some of the over tools that can supercharge your business in 2022.