Making Tax Digital (MTD) for VAT became mandatory for all companies from April 2022. But despite the impending deadlines for registration and first returns to be made under the new scheme, many companies are still not ready, with some suggesting the figure could be as high as 80% of companies not prepared.
Who needs to use MTD for VAT?
MTD for VAT applies to all companies already registered for VAT, unless they are already exempt under HMRC rules. The new system, which came into force on April 1st 2022, requires businesses to use a MTD compliant software application for maintaining their financial company records e.g., income and expenditure. By doing so, it will be possible to transmit the VAT return electronically to HMRC, rather than having to manually enter the information via the portal or by paper as was previously the case.
When does MTD apply?
Whilst the mandating of the scheme applied from 1st April, businesses are required to sign up to MTD for the next full VAT period after 1st April 2022. So, if your last VAT period ran to 31st March 2022, you need to sign up from 8th May and submit your next VAT return via MTD for the period 1st April to 30th June 2022. If your last VAT quarter runs to 30th April, then you need to sign up for MTD by 8th June and submit your first return for the period 1st May to 31st July. The deadlines fall on the 8th of each month on a rolling basis based on the dates of your last completed quarter.
Is this the last phase of MTD?
No, MTD for VAT is merely the latest stage in the digitisation of tax accounting to HMRC. It forms part of a much broader and longer term strategic plan to make the calculation and collection (payment) of taxes entirely automated across both personal and commercial affairs. The next planned phase is MTD ITSA (Income Tax Self-Assessment) which will come into effect in April 2023. Previous phases have been delayed due to Brexit and the Covid pandemic, but it is expected that all future phases will run to schedule.