A major change in the way VAT is reported comes into force from tomorrow. Every small business that charges VAT will have to file accounts through the HM Revenue & Customs (HMRC) Making Tax Digital (MTD) system.
All VAT-registered businesses must use MTD for VAT for their first VAT return starting on or after 1 April 2022.
Making Tax Digital April 2022 – what’s changing
It’s been over two and a half years since HMRC went live with its MTD for VAT pilot. Since April 2019, UK businesses above the £85,000 VAT threshold have been tasked with processing their returns digitally.
This entails using software for:
- Recording and maintaining your VAT accounting records
- Creating VAT Returns
- Sending the VAT Returns to HMRC
Instead of submitting VAT returns on the HMRC website, businesses will need to use approved software and your accountant will be able to submit the returns on their behalf.
HMRC says MTD helps taxpayers get their tax returns right by reducing common mistakes as well as saving time managing their tax affairs and is a key part of the overall digitalisation of UK tax.
Records must be kept digitally and include:
- The name of the business
- Address of the business
- The VAT registration number
- Any details of any VAT accounting schemes currently in use
- Most businesses will need to record for each invoice the time and date of supply, the net value of the invoice and the rate used to calculate VAT.
Some businesses will need to keep more or less information depending on their circumstances. Your accountant will advise.
HMRC says that its research, peer-reviewed by independent academics, shows MTD is likely to have generated increased revenue through reducing errors in both 2019 and 2020.
Nearly 1.6 million taxpayers had joined MTD for VAT as of December 2021 with more than 11 million returns successfully submitted.
Streamlining the processes
Lucy Frazer, HM Treasury’s Financial Secretary to the Treasury, said: “Businesses using MTD are saving time on their tax affairs, streamlining their processes and boosting their productivity as a result.
“Our first move towards a modern, digital tax service – MTD makes it easier for businesses to get their tax right first time.”
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