All VAT-registered businesses must comply with Making Tax Digital (MTD) rules, regardless of how much they make each year.
Kicking in from 1 April 2022, the changes mean all VATregistered businesses must compile and submit VAT returns using software that connects to HMRC’s systems.
They can do that either through a bridging tool or by using an application programming interface (API) to connect incompatible software, such as Excel spreadsheets, to HMRC’s systems.
Alternatively, businesses can adopt one of several HMRC recognised and compatible MTD software solutions, including cloud accounting platforms.
Although MTD for VAT is not completely new, this is a significant change for smaller businesses, many of which do not digitally store business records and file VAT returns.
Since April 2019, businesses with an annual turnover of £85,000 or above have been required to meet MTD for VAT obligations.
MTD is the Government’s flagship policy to digitise and modernise the tax system, making it more understandable and efficient so less tax revenue is lost to mistakes and errors.
All VAT-registered businesses must follow MTD for VAT rules from either 1 April, 1 May or 1 June 2022 depending on their VAT return quarters.
Any trader who should be filing VAT returns under MTD but has not registered will be charged a penalty.
However, businesses can apply for an exemption if they are unable to use digital tools, for example because of remoteness or religious beliefs.
MTD for income tax is expected to come into force in April 2024 after being delayed by a year to give businesses more time to recover from the worst of the pandemic.
Corporation tax is not expected to come into effect until April 2026 at the very earliest.
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