Tax practitioners’ attention will soon move from self assessment tax returns to clients who need to comply with Making Tax Digital for VAT (MTD VAT) from their first accounting period that starts on or after 1 April 2022.
Of the total 2.5m VAT trader population, about 1.6m have already signed up to MTD VAT, including about a third of those that are not required to sign up until April 2022.
Points to consider include:
Digital exclusion exemption
Does the client qualify for a digital exclusion exemption? Applications can be made now (by phone or in writing), in advance of the start date.
Digital links
Digital links is the term used to describe the requirement for a digital flow of data from the point at which the transaction is recorded in software to the VAT return. This requirement has applied since April 2021. There is no soft landing period for those that are required to join MTD VAT from April 2022. Digital links must be in place for the first MTD VAT return.
Help to Grow: Digital
The government has launched Help to Grow: Digital to help small businesses benefit from digitalisation. Businesses can receive up to £5,000 in funding to cover up to 50% of the cost of approved software. The scheme is only available to incorporated businesses with between five and 249 employees and the list of available accounting software is currently limited to three providers (SAGE, QuickBooks and Crunch). By comparison, there are around 600 providers of MTD VAT software.
Get the timing right
It is important to sign up to MTD VAT at the right time.
If the business pays its VAT by direct debit, it should sign up:
- at least seven days before the first MTD return is due; but
- at least five days after the last non-MTD return is due.
Signing up too close to the date the return is due can result in duplicate payments being collected.
If the business does not pay by direct debit, it should sign up at least three days before the first MTD VAT return is due.
Penalties
On 13 January 2022, the government announced that the new penalty and interest rules for VAT will be introduced in January 2023 rather than April 2022. Information on the current penalty rules can be found on ICAEW’s MTD hub.
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