All VAT-registered businesses to join Making Tax Digital from April 2022

Are you ready for Making Tax Digital for VAT? Even VAT-registered businesses with a taxable turnover below £85,000 need to sign up for the regime before 1 April 2022, unless exempt.

VAT-registered businesses are being encouraged to sign up for Making Tax Digital (MTD) for VAT before 1 April 2022.

From this date all VAT-registered businesses have to join the MTD regime, even where their turnover is below the current £85,000 VAT registration threshold.

This means they will need to keep digital accounting records and submit VAT returns using software that is compatible with MTD for VAT.

Businesses need to have signed up to MTD for their first VAT return starting on or after 1 April 2022, but they may not be required to make their first submission via MTD until Summer 2022.

New entrants to the regime will join larger businesses that enrolled back in 2019.

Those affected by the 1 April deadline will need to consider suitable software and training in order to comply with the regime. As this can be time-consuming and costly, it is advisable to start the transition as soon as possible.

It is a mandatory requirement and there are penalties which can be imposed by HMRC where record keeping and submissions do not meet the rules. A major reform of penalties has been deferred until 1 January 2023.

Our Cloud Accounting Team can advise on the regime and how to proceed. So please get in touch with the team as soon as possible.

According to HMRC, around a third of VAT-registered businesses with taxable turnover below £85,000 have already voluntarily signed up to MTD.

Exemptions

Some businesses may be eligible for exemption where 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 carries over to MTD.

More information about exemptions and applying for one can be found on the GOV.UK website.

An exemption could be granted where it is not reasonable or practical for you to use computers, software or the internet to follow the rules for MTD. This could be because:

• of your age, a disability or where you live
• you object to using computers on religious grounds
• of any other reason why it’s not reasonable or practical

HMRC says it will consider each application on a case by case basis.

Applying for MTD registration

Where an exemption cannot be granted, businesses can either register themselves for MTD or Bishop Fleming can do this for you.

MTD-compatible software must be in place before registering, so this needs to be addressed first with our team if you do not already have software, or compatible software.

Other options

For those who do not wish to be part of MTD for VAT, deregistering from VAT is an option, but not necessarily one to be taken lightly due to the possible adverse consequences.

A business can deregister where it expects its taxable turnover to be less then £83,000 over the next 12 months.

However, there are a number of issues to consider, including whether the loss of input VAT as a result of deregistering will be greater than the additional cost and time of joining MTD.

It would also be inadvisable for a growing business to deregister where the registration threshold is likely to be exceeded in the next few years, as it will then need to re-register.

Another cost to consider is the output VAT that will be payable on the market value of any stock and assets at deregistration where input VAT was originally claimed. This could be substantial, although there is a de-minimis VAT figure of £1,000 (market value of stock and assets less than £5,000).

There will also be complications where a business is on the cash accounting scheme as this may cause cash flow problems on deregistration. Similarly, there may be issues with bad debts.

As time is running out, any business contemplating deregistering will need to discuss this with their Bishop Fleming advisor or a member of our VAT team as soon as possible.  There may be a number of unforeseen consequences if the situation is not fully explored before any decision is made.

But any business that is growing or is looking to do so would be well advised to bite the bullet and join MTD now, particularly as MTD for income tax will also come into effect in 2024.

Contact us

If you would like to discuss how you can prepare for MTD and the software to use, please contact a member of our Cloud Accounting Team or your usual Bishop Fleming advisor in the first instance.

More information about MTD and cloud accounting can be found on our website.