Making tax digital

Making Tax Digital (MTD) for VAT mandates that VAT-registered firms with taxable turnover over the VAT registration threshold (currently £85,000) keep digital records and submit their VAT returns using MTD software from 1 April 2022. If your taxable turnover drops below the VAT registration threshold before 1 April 2022, you’re still required to continue to keep digital records and send HMRC your VAT returns using MTD-compatible software. This obligation doesn't apply if you de-register from VAT or are exempt from MTD for VAT. Regardless of the number of your taxable sales, if your firm is not located in the UK, you may still be required to register for VAT and file VAT returns. The Making Tax Digital guidelines, on the other hand, will only apply to you if your taxable turnover in the United Kingdom exceeds the UK registration VAT threshold.

 When to sign up:

If a company joins up too soon after the final non-MTD VAT return has been filed but before the direct debit payment has been made, the payment may not be received by HMRC, and the company may be charged a late payment penalty. If you sign up too late, you may face penalties, or you may not be able to submit your VAT return at all since the previous VAT portal will be shut down.  You can still sign up for MTD voluntarily before it becomes mandatory for all VAT-registered firms in April 2022. HMRC is encouraging firms with taxable turnover below the VAT threshold to sign up for MTD so that they may take advantage of its benefits.

All VAT liability due after an MTD return is collected by a new HMRC bank account as part of the MTD transition. The transfer of the direct debit authorization from HMRC's old bank account to the new MTD-related bank account takes seven working days. If a company pays its VAT by direct debit, it must enrol in MTD at least seven clear working days before the VAT filing date. Before enrolling in MTD VAT, all firms must ensure that the direct debit for the previous non-MTD VAT period has been paid.

 Records to keep:

You'll need to start keeping digital records if you haven't already. This can be done with a spreadsheet or accounting software. To get at the return information you need to send to HMRC, you can use a spreadsheet to compute or summarise VAT transactions. MTD does not need you to keep more VAT records, but it does force you to digitally record them. The time of supply (tax point), the value of the supply (net excluding VAT), and the rate of VAT charged should all be included in your digital records for each supply. They should also include information about your company, such as its name and primary location, as well as your VAT registration number and any VAT accounting methods you use.

 Consequences of not signing up with MTD:

Until January 1, 2023, the VAT default surcharge penalty system will be in effect. If a business is already in default for VAT late filing or late payment, the second instance of lateness caused by a faulty MTD sign-up could result in a penalty of 2%, 5%, or even 15% of the late paid VAT.

The new penalty system will be much more flexible, allowing firms to pay any outstanding VAT within 14 days without incurring any penalties.

 To learn more about MTD registration consider Cheylesmore Chartered Accountants.