Making Tax Digital for VAT
Making Tax Digital (MTD) for VAT requires VAT-registered businesses with taxable turnover above the VAT registration threshold (currently £85,000) to keep records digitally and submit their VAT Returns using MTD software. The majority of businesses have had to submit MTD VAT Returns for periods starting on or after 1 April 2019. This will be mandatory for the remaining VAT registered businesses by 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. Further information can be found on HMRC’s VAT Notice 700/22.
Let's first look at what hasn't changed:
- VAT returns will continue to be completed monthly, quarterly or annually
- VAT payments will still be due on the current payment dates
- No additional records need to be kept for VAT purposes
- Spreadsheets can still be used to record business transactions
- Current exemptions from online filing will continue
So, what has changed? There are two main changes to VAT with the commencement of MTD:
- The need for digital records to be retained and the way in which VAT returns are filed with HMRC.
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What happens if your taxable VAT turnover is below the VAT MTD threshold
Prior to mandation of all VAT registered businesses in April 2022, you can still sign up for MTD voluntarily. HMRC is encouraging businesses with a taxable turnover below the VAT threshold to sign up so they can also benefit from MTD. Businesses can also sign up for MTD for Income Tax. This means, subject to your business type, you can further streamline your business processes.
Software will help you stay on top of business record keeping, allowing you (and your agent, if you have one) to better understand how your business is performing.
Please note that from April 2021 if you have not signed up to MTD for VAT you will no longer be able to submit VAT Returns under the old XML based system. This means that you will no longer be able to use third party software. However, HMRC will be adding functionality to the Business Tax Account to submit returns until April 2022 or you can continue to use third party software by signing up for MTD for VAT early.
What your business needs to do to be ready to sign up for MTD for VAT
If you don’t already, you’ll need to start keeping digital records. This can be via a spreadsheet or cashbook/bookkeeping software. A spreadsheet can be used to calculate or summarise VAT transactions to arrive at the return information you need to send to HMRC.
Take a look at our useful Step by Step Guide for Businesses for more information.
Records that you need to keep digitally for MTD for VAT
MTD does not require you to keep additional records for VAT, but to record them digitally.
Your digital records should include, for each supply, the time of supply (tax point), the value of the supply (net excluding VAT) and the rate of VAT charged. They should also include information about your business, including business name and principle business address, as well as your VAT registration number and details of any VAT accounting schemes you use.