Making Tax Digital for VAT is coming – are you ready?


Businesses are reminded to take steps to prepare for Making Tax Digital for Value Added Tax (VAT) before it becomes mandatory for all VAT-registered businesses from 1 April this year.

Making Tax Digital is designed to help businesses eliminate common errors and save time managing their tax affairs.

Making Tax Digital for VAT is part of the overall digitalisation of UK Tax. In a recent independent study of over 2,000 businesses, 69% reported experiencing at least one benefit from Making Tax Digital. These included preparing and submitting returns faster and increased confidence that they were getting tax right. Sixty-seven percent of businesses also felt Making Tax Digital had reduced the potential for mistakes in at least one aspect of the record keeping, preparing and submitting returns process.

As of December 2021, nearly 1.6 million taxpayers had joined Making Tax Digital for VAT with more than 11 million returns successfully submitted. Around a third of VAT-registered businesses with taxable turnover below £85,000 have voluntarily signed up to Making Tax Digital for VAT ahead of April 2022, and thousands more are signing up each week.

Since April 2019, businesses with a taxable turnover above £85,000 have already been required to follow Making Tax Digital, keeping digital records and filing VAT returns using Making Tax Digital compatible software.

In July 2020, it was announced that all VAT-registered businesses must file digitally through Making Tax Digital from April 2022, regardless of turnover. HMRC is now reminding businesses below the £85,000 threshold of the steps which they need to take to be ready.

To sign up to Making Tax Digital VAT, businesses, or an agent on a businesses’ behalf, need to:

  1. visit GOV.UK and choose Making Tax Digital-compatible software
  2. keep digital records starting from 1 April 2022 or the beginning of their VAT period
  3. sign up and submit their VAT Return through Making Tax Digital

If businesses have not yet signed up to Making Tax Digital for VAT, they should do so now to ensure they are ready in time for the April 2022 deadline.

Joanna Rowland, HMRC’s Director General for Transformation, said:

Making Tax Digital is fundamental to the delivery of a trusted and modern tax system, 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 most businesses to experience long-term benefits, including reduced errors and time saved in managing their tax affairs.

We encourage businesses to explore digital record-keeping for their VAT affairs and use this time to choose the right software to support their business needs.

Mike Cherry, FSB National Chair, said:

We have worked hard to ensure Making Tax Digital launch dates were adjusted to give small businesses more time to prepare and allow more competition to open up in the accounting software market. It’s important that firms do all they can to get ahead of deadlines and access the affordable platforms that are now available; if they are members of FSB, they will have access to a new easy Making Tax Digital member service that we are creating.

We’ll continue to work with government, and through our support services, to minimise the admin and cost impacts of Making Tax Digital on small firms whilst unlocking the productivity gains the initiative could bring.

Businesses can find help and support on how to sign up for Making Tax Digital on GOV.UK. Agents can sign up on behalf of a business, although businesses remain responsible for meeting their VAT obligations. Those who do not join may be charged a penalty for failure to do so.

For businesses who need help and support on signing up for Making Tax Digital, HMRC is running a series of webinars. More information can be found on HMRC’s Making Tax Digital help page.

We recognise that some businesses will experience upfront costs in joining Making Tax Digital. There are a range of compatible software products available for Making Tax Digital for VAT, allowing businesses to choose which tools they use to run their business and tax affairs. A list of software compatible with Making Tax Digital for VAT, including low-cost options is available on GOV.UK.

Some VAT-registered businesses may be eligible for an exemption from Making Tax Digital, if it is not reasonable or practicable for them to use digital tools for their tax. If a business has previously been granted an exemption for VAT online filing, this will carry over to Making Tax Digital VAT requirements. Information on how to apply for an exemption is available on GOV.UK.

Example case studies from businesses who are currently benefitting from Making Tax Digital for VAT are ready to watch on YouTube.

Further information

Businesses can choose to register themselves for Making Tax Digital or can ask their agent to do this for them.

Businesses, or an agent on their behalf, must sign up to Making Tax Digital for VAT via GOV.UK to fully join Making Tax Digital. They must have Making Tax Digital-compatible software before signing up.

Please ensure that you sign up to Making Tax Digital at least 5 days after your last non-Making Tax Digital VAT return deadline date, and no less than 7 days before your first Making Tax Digital VAT Return deadline date or you may pay for your VAT twice.

Businesses must keep digital records under Making Tax Digital. This can be done through software. Where a business chooses to use bridging software, digital links must be in place to ensure that records are kept digitally as information is transferred between different platforms.

Businesses need to have signed up to Making Tax Digital for their first VAT return starting on or after 1 April 2022. They may not be required to make their first submission via Making Tax Digital until Summer 2022.

Impact of Making Tax Digital for VAT was prepared by IFF Research for HMRC in July 2021.

In 2020, the government published ‘Building a trusted, modern tax administration system’, setting out a vision of a UK tax system fit for the 21st century, designed to improve its resilience, effectiveness and support for taxpayers. Making Tax Digital is the first phase of a move toward this modern, digital tax service.

Making Tax Digital first launched for those with taxable turnover above the VAT threshold (£85,000 per annum) in April 2019.

Last year, the government announced that Making Tax Digital for Income Tax Self Assessment will be introduced a year later and will now come into effect in the tax year beginning in April 2024, giving businesses more time to prepare.

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