From 1 April 2022, compliance with Making Tax Digital (MTD) for VAT became mandatory for all VAT registered businesses, with the exception of the few which have been granted an exemption. HMRC is now taking a firmer approach to those businesses which have not taken the necessary steps to become compliant.

Should I be using MTD for VAT now?

VAT-registered businesses with a taxable turnover above the threshold of £85,000 should have been keeping digital records using MTD compliant software and filing their VAT returns digitally from 1 April 2019.

For VAT-registered businesses with a taxable turnover under the £85,000 threshold, the first VAT return to be filed under MTD is the return starting on or after 1 April 2022. Businesses who file VAT returns monthly, or those who file quarterly with an April-June quarter, should therefore already be MTD compliant.

If your VAT period started before 1 April 2022, you are not legally required to keep digital records until this period has ended. However, if you are not already using MTD compliant software, we would recommend transitioning to this as soon as possible to allow you time to familiarise yourself with the processes and ensure you are fully compliant in plenty of time.

If your business has already been granted an exemption to MTD, this still applies beyond 1 April 2022.

What will happen if I am not compliant in time?

Businesses which are required to comply with MTD for VAT should submit their VAT returns through the new MTD Government Gateway.

Where businesses should be compliant but are not, messages may be displayed when VAT returns are filed through the existing (non-MTD) gateway. These messages state: “You cannot use this service to submit returns for accounting periods starting after 1 April 2022. Instead you’ll need to keep digital records and submit returns using HMRC compatible software. Find out when you need to sign up and start using Making Tax Digital for VAT.”

There is a risk that HMRC may take the decision to close the existing gateway for businesses who do not have a valid exemption in place. This would leave non-compliant businesses with no route to file their VAT return within the deadline, potentially leading to penalties.

What do I need to do?

If you are not already signed up to MTD and are required to be, you should implement an appropriate MTD-compliant software solution and begin keeping your records digitally immediately. If you are not sure whether or not you are required to operate under MTD, there is useful guidance on the Government website here.

Our Digital Advisory team are also on hand to help, and can provide guidance on your MTD obligations as well as advising on the best solution for your business. To discuss your requirements, get in touch with me at ewan.bolt@jcca.co.uk or another member of our Digital Advisory team.