MAKING TAX DIGITAL - 01.10.2020

MTDfV cliff-edge is coming

All VAT-registered businesses will need to comply with Making Tax Digital for VAT (MTDfV) from 1 April 2022. You are registered voluntarily but are considering deregistering ahead of that date. What do you need to watch for?

The current rules. Since 1 April 2019, any business with taxable turnover above the VAT registration threshold has been required to store its VAT records digitally and submit VAT returns via an interface with HMRC software. The purpose of Making Tax Digital for VAT (MTDfV) is to reduce VAT errors made by a business and therefore ensure the correct VAT is paid in each period.

Voluntary registration. Initially, the estimated 1 million businesses that are VAT registered on a voluntary basis were not required to comply with MTDfV. However, from 1 April 2022, these businesses must also meet the requirements.

Trap. You need to monitor your turnover to check if it increases above the threshold. If it does, you will need to comply with MTDfV earlier.

Tip. Many businesses that are voluntarily registered will probably have quite simple accounting records. If this is the case with your business it might be sensible to start the MTDfV process now, e.g. looking at suitable accounting software or bridging software if you use spreadsheets.

Trap. There will be no exemption from MTDfV for charities or not-for-profit organisations.

Deregistration. If you are voluntarily registered, you might decide to deregister rather than comply with the new MTDfV requirements in 2022. But this means that you will lose the opportunity to claim input tax on your business expenses. It is therefore a case of balancing the additional compliance costs with the extra VAT cost on your expenses if you deregister.

Trap. Before you deregister, make sure you check that you don’t have a large output tax liability on stock or assets you own on the date of deregistration. There is no VAT to pay if you didn’t claim input tax when you purchased the goods.

Consider adopting MTDfV in advance of the April 2022 start date if you are voluntarily registered for VAT. You might prefer to deregister instead but check there is no unexpected VAT bill on your stock and fixed assets.

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