Making Tax Digital: Helpful Tips



Making Tax Digital: Helpful Tips


Since soaring past the deadlines for self-assessment tax returns, our attention has moved towards our clients who are required to comply with Making Tax Digital for VAT from 1st April 2022.


To put it into perspective, the UK has a VAT trader population of around 2.5 million and, of these, around 1.6 million have signed up to Making Tax Digital for VAT already. Including around one third of those who are required to sign up in April 2022.


Prior to signing up, it is worth considering whether a client qualifies for a digital exclusion exemption: applications can be made in writing or by phone prior to the start date.


Since April 2021 there has been a requirement for a digital flow of data from when the transaction is recorded in software to the VAT return. These data flows are referred to as ‘digital links’. Digital links are required to be in place for the first MTD VAT return.


Small incorporated businesses with between 5 and 249 employees may benefit from the government scheme ‘Help to Grow: Digital’. They can receive funding of up to £5,000 to cover up to 50% of the cost of approved software (only SAGE, QuickBooks or Crunch out of over 600 providers are currently approved).



Timing


Timing is very important for MTD.


Businesses which pay their VAT by direct debit should sign up a minimum of 7 days before the first MTD return is due and a minimum of 5 days after the previous (non MTD) return was due. If they sign up too close to the due date of the return run the risk of duplicate payments being collected.


Businesses who do not pay their VAT by direct debit should sign up a minimum of 3 days before their first MTD VAT return is due.



Penalties


It was announced on the 13th of January 2022 that the new penalties and interest rules for VAT will no longer be introduced in April 2022 and, instead, will come into effect in January 2023.

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