Businesses should take steps to prepare for Making Tax Digital ("MTD") for VAT before it becomes mandatory for all VAT-registered businesses, HMRC has said.
Designed to help businesses eliminate common errors and save time managing their tax affairs, MTD for VAT will become mandatory for smaller VAT businesses from 1 April this year.
MTD for VAT has been mandatory for VAT registered businesses with a turnover of £85,000 or above since first April 2019 and in July 2020, it was announced all VAT-registered businesses would have to file that digitally from April 2022, regardless of their turnover.
HMRC is therefore urging businesses to explore digital record-keeping for VAT and choose the right MTD compatible software to support their needs.
Joanna Rowland, HMRC's director-general for transformation, said:
“Making Tax Digital Is fundamental to the delivery of a trusted column, making it easier for businesses to get their tax right and supporting the UK to go digital.”
“By signing up for Making Tax Digital, we expect businesses to experience long-term benefits, including reduced errors and time saved in managing their tax affairs.”
Mike Cherry, national chairman of the Federation of Small Businesses, agreed:
“It is important that firms do all they can to get ahead of deadlines and access the affordable platforms that are now available.”
MTD – The Basics
From six April 2024, self-employed people and landlords would be required to operate MTD if their turnover exceeds £10,000. This will mean keeping digital records and providing quarterly updates and an end of year declaration to HMRC through MTD-compatible software. This will apply to businesses being carried on before 6 April 2023.
Partnerships are being brought into the regime at a later date. For general partnerships, MTD for ITSA will apply from 6 April 2025. The date for more complex partnerships (such as limited liability partnerships) is yet to be announced. Similarly, there has been no update on the start date for MTD for corporation tax since HMRC previously stated that this will not be mandated before 6 April 2026.