Making Tax Digital extended to more businesses

Making Tax Digital (MTD) forms a key part of the governments’ plans to make it easier for individuals and businesses to get their tax right and keep on top of their business affairs. This shouldn’t be a new term for us now; changes to payroll under the Real Time Information system was introduced in 2013, and MTD for VAT has been in operation since 2019.

The ambition is supposedly to become one of the most digitally advanced tax administrations in the world.  Making fundamental changes to the way the tax system works, making tax administration more efficient, effective and easier for taxpayers to get their tax right.

MTD rules currently apply to VAT registered businesses making taxable supplies in excess of the £85,000 VAT registration threshold.  This requires these businesses to keep digital business records and send VAT returns using MTD-compatible software.

MTD for VAT is now being rolled out to all VAT registered businesses from April 2022 which may cause some traders who are VAT registered but below the threshold to consider deregistering to avoid having to comply with MTD for VAT. Currently, it’s still OK to keep manual records and file VAT returns online for these businesses, but change are afoot.

If you fall below the threshold and decide that this is the best line of action for you,  you will need to complete Form VAT7 and account for output VAT on the market value of stock and assets still owned at the date of deregistration. This is where input VAT has been reclaimed on those assets.

There is however a £1,000 de-minimis which means that output VAT does not need to be accounted for where the combined market value of the assets is less than £6,000.

Deregistering for VAT will not however avoid MTD completely as the requirement to keep business records digitally are being introduced for income tax from April 2023.  This will apply to businesses with gross income in excess of £10,000 a year which will include property landlords as well as traders and professionals.

Keeping digital and more up to date records though is not a bad thing. More decisions can be made for the benefit of your business strategy by keeping on top of the day to day numbers of your business. Only looking at the financials retrospectively to file a VAT return or tax return means you’re unlikely to be able to take action to resolve a cashflow problem, for example, before it’s already hit your pocket.

If you’d like to discuss your options for VAT, or consider taking a more proactive approach to your business bookkeeping, contact Tanya Ibberson at