Extension of Making Tax Digital to all UK VAT registered businesses from April 2022
- Dec 1, 2021 | Alex Baulf
With effect on April 1, 2022, Making Tax Digital (MTD) for VAT will be extended to all UK VAT registered businesses – regardless of their size and whether they are registered for VAT purely on a voluntary basis. This will affect approximately 1.1 million VAT registered businesses with taxable turnover below the current VAT threshold (which is set at £85,000 until 31 March 2024) that are not currently required to meet MTD requirements for VAT reporting and record keeping.
It is estimated that about a quarter of UK VAT registered businesses trading below the VAT threshold have already voluntarily chosen to join MTD and submit VAT returns via an API using compliant software. The UK’s tax authority, HM Revenue & Customs (HMRC) is now starting to notify the remaining affected businesses (including the self-employed, landlords and civil society organisations), and will send letters to an initial wave of 326,500 voluntarily VAT registered businesses to remind them of their MTD obligations from April 1, 2022.
To enable the mandatory extension of the operation of MTD to all UK VAT registered businesses, the Finance Act 2021 made a minor amendment to paragraph 6 of Schedule 11 to the Value Added Tax Act 1994 to remove the exemption for businesses with a taxable turnover below the VAT registration threshold.
As the UK has a nil threshold for non-established businesses, all foreign businesses registered for UK VAT have already been required by law to be compliant with MTD.
End of soft-landing
When MTD first came into force, HMRC implemented a ‘soft-landing’ period to allow businesses to get their digital links into place and in some unique cases had formally provided a short-term extension. However, it is now clear that MTD compliance will be considered when looking at the cause of VAT errors and the extent to which penalties are levied or mitigated. We understand many businesses are not fully compliant yet due to a variety of reasons including ERP upgrades, data quality issues and recent M&A activity, but now is the time to revisit and implement a compliant process and solution to ensure readiness for 2022.
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