Under Making Tax Digital (MTD) for VAT, VAT-registered traders must keep electronic records and file their VAT returns electronically using software that is compatible with MTD for VAT.

Prior to 1 April 2022, MTD for VAT was only mandatory for VAT-registered traders whose turnover for VAT purposes was above the VAT registration threshold of £85,000. VAT-registered traders whose turnover was below the VAT registration threshold could choose whether to join or not.

MTD for VAT extended

From 1 April 2022 MTD for VAT was extended to all registered VAT traders regardless of turnover. This means that for those VAT-registered traders whose turnover is below the VAT registration threshold of £85,000 and who have not already joined MTD for VAT must do so from the start of their first VAT accounting period beginning on or after 1 April 2022.

As an example…

Sarah is a VAT-registered retailer with a turnover for VAT purposes of £50,000.

Sarah’s VAT quarters run to 31 January, 30 April, 31 July and 31 October and she has not yet joined MTD for VAT.

Sarah must start complying with MTD for VAT from 1 May 2022. This is the first day of the VAT quarter to 31 July 2022 and the first day of her first VAT accounting period that begins on or after 1 April 2022.

She must file the return for the period by 7 September 2022 using MTD-compatible software.

Need to register

Business owners who are joining MTD for VAT from 1 April 2022 will need to sign up. They can do this via their Government Gateway Account. Alternatively, if they want to use an agent to submit their returns on their behalf, their agent can sign them up, but will need authorisation from the owner to do so.

If you are looking to pay by direct debit it is advisable to not leave this too close to the return deadline as you could end up paying their VAT twice. The window to avoid is the period from seven days before the return is due until five days after the return is due.

Electronic records

Under MTD for VAT, the business owner must keep all of their VAT records electronically. This can be done via a software package. Alternatively, spreadsheets can be used. However, where spreadsheets are used, these must be linked to the return – figures should not be entered manually.

VAT return software

VAT returns must be filed using software that is compatible for MTD for VAT. There are many available and you may already be using a compatible software – HMRC does provide a list if you need to check.

Is it worth de-registering?

If you are a business owner whose turnover is under the VAT registration threshold you may wish to review whether, in light of the need to comply with MTD for VAT, it remains beneficial to be VAT-registered.

For advice and support on all things VAT related, please do get in touch.