From 1 April 2022, businesses registered for UK VAT on a voluntary basis are required to comply with MTD procedures. Our team have pulled together details on who will be affected, what the new procedures are and a step by step guide on how to ensure compliance before the deadline.
Who is affected?
VAT-registered businesses, individuals and charities that are registered for VAT on a voluntary basis (typically those with turnover of less than £85,000) that are not already registered for MTD will be required to apply and follow the MTD rules from 1 April 2022.
What are the VAT MTD rules?
1. Businesses must keep digital records
From 1 April 2022 all UK VAT registered businesses must keep and maintain VAT records digitally in “a compatible software package that allows you to keep digital records and submit VAT Returns” or use “bridging software to connect non-compatible software (like spreadsheets) to HMRC systems”.
This requirement is compulsory for all VAT periods beginning on or after 1 April 2022.
Records included under this requirement include sales and purchase invoices with VAT, however, accounting records not specific to VAT returns are not included.
The data that must be stored digitally includes:
- your business name, address and VAT registration number
- the VAT accounting schemes you use
- VAT on goods and services you supply (everything you sell, lease, transfer or hire out)
- VAT on goods and services you receive (everything you buy, lease, rent or hire)
- any adjustments you make on a VAT return
- the ‘time of supply’ and ‘value of supply’ for everything you buy and sell
- the rate of VAT charged on goods and services you supply
- reverse-charge transactions – where you record the VAT on both the sale price and the purchase price of goods and services you buy
- total daily gross takings if you use a retail scheme
- items you can recover VAT on if you use the Flat Rate Scheme
- total sales, and the VAT on those sales, if you trade in gold and use the Gold Accounting Scheme
2. Businesses must use digital links to submit VAT returns to HMRC
If more than one software package is used the packages need to be linked digitally. The links can involve:
- using formulas to link cells in spreadsheets
- emailing records
- putting records on a portable device to give to an agent
- importing and exporting XML and CSV files
- downloading and uploading files
Digital should NOT involve:
- ‘cut and paste’ manual adjustments to move data; and
- any manual adjustments and consolidations of group returns in spreadsheets.
Penalties and interest will arise for late, inaccurate or non-compliant returns with additional penalties levied for repetitive mistakes or false information. Penalties can be up to 100% of the VAT due with interest charged at 3% of the amount owing.
Take action now before 1 April 2022 deadline
If you are affected by this change you must take action now to avoid penalties from HMRC. Our expert team are on hand to help clients comply from 1 April 2022 and can discuss options and solutions that can be implemented now ahead of the deadline.
There are exemptions from MTD for those that qualify by reason of age, disability, location or religion however specific conditions must be met. Businesses that do not want to move their financial records to a new MTD compliant accounting package could use Azets MTD for VAT bridging tool. This can be found in our Azets CoZone client portal and can be used to complete and submit VAT returns to HMRC.
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Guide | Making Tax Digital
Our experts have created a ‘Making Tax Digital’ guide, taking you step-by-step through the process to ensure you remain compliant and meet the deadline of 1 April 2022 for Making Tax Digital for VAT.