What’s next for Making Tax Digital in 2022?

While the Making Tax Digital (MTD) scheme has been in place since April 2019, there were some exclusions. The first phase was registering businesses with an annual turnover of £85,000, while those below the threshold could register voluntarily. As of April 2022, the next phase requires all VAT-registered businesses to sign up to Making Tax Digital, regardless of their annual turnover.

Every VAT-registered business must also register with MTD, keeping VAT records and submitting VAT returns digitally through the MTD software. Some lower-turnover businesses may already be doing this after registering voluntarily, but for those who aren’t yet, it’s no longer possible to delay.

What is Making Tax Digital?

Most business owners probably dread tax paperwork the most. After replacing the old Government Gateway with HMRC Online Services, the government is phasing in Making Tax Digital with the aim of simplifying the confusing tax system to make things easier for business owners and accountants.

This modernisation involves either using the MTD software or connecting their existing software to the MTD portal to file digital VAT records. With an accurate and consistent flow of information, old-fashioned annual tax returns will soon become a thing of the past, replaced by quarterly updates.

Not only should this make it simple to file VAT returns correctly and on time, but there are also other benefits to digitalising your tax records. The more efficient and scalable system makes financial positions much clearer, aiding in cash flow control, data forecasts, and growth strategies.

How can I sign my business up for Making Tax Digital?

From 1st April 2022 onwards, all VAT-registered businesses must enrol with MTD and use the system to submit all VAT returns this way. If your annual return isn’t due until the end of the accounting period in December 2022, you may not need to sign up for and use MTD until the beginning of 2023.

It’s best not to wait too long, however, as you must allow time to set up the software and for HMRC to confirm your registration. This can take up to 72 hours, so don’t leave it to the last minute. Even brief delays of a few working days could make returns and payments late, incurring a tax penalty.

Requiring all business on the VAT register to comply with MTD, not just those with an annual turnover above £85k, is only the second phase. In April 2024, we’ll see the introduction of MTD for Income Tax, which will affect landlords and the self-employed with annual income over £10,000. From April 2025, individuals in partnerships will also have to enrol, with more updates to come.

Why should I use Making Tax Digital software?

Many businesses keep their VAT records in spreadsheets, with most using specialist accounting software like Sage or Xero. If you don’t want to switch to MTD completely, it’s possible to use compatible bridging software to connect your existing system with MTD, allowing you to submit information digitally in compliance with HMRC rules without having to scrap your current system.

Even if you prefer to stick with bridging software, your business will still benefit from switching to digital VAT submissions. Phasing out manual paperwork should help to reduce errors, keeping records safely in one place where you can access them easily as and when you need to check your data or calculations. As a time-saving solution, MTD should also increase employee productivity.

No more losing receipts or digging through cabinets for poorly organised documents. Stress-free VAT records and returns, instead of a last-minute panic before the annual deadline. What’s not to like? When it comes to software costs, there are plenty of options for businesses at all income levels, plus the Help to Grow: Digital scheme – and you can also claim expenses back under business tax relief.

How can Making Tax Digital help my business?

Small businesses may be wary of the changes that come with digitalisation, but this modern overhaul of the old tax system is long overdue. HMRC has been mailing letters to VAT-registered businesses who are now required to sign up for MTD, but even if you haven’t received these instructions yet, or your small business isn’t currently included, it never hurts to be prepared.

If you’re ready to register and make the most of digital VAT software, you can learn more about HMRC-recognised MTD software on the government website. Should you need help evaluating whether your business is required to enrol or qualifies for an MTD exemption, or need assistance with VAT accounting and relevant software, you can always contact GBAC for expert guidance.

Contact the GBAC team by email at info@gbac.co.uk or by phone on 01226 298 298 today.