HMRC is reminding businesses to prepare for Making Tax Digital for Value Added Tax (VAT) before it becomes mandatory for all VAT-registered businesses from 1st April. Around two-thirds of VAT-registered businesses with taxable turnover below £85,000 have yet to sign up.
Making Tax Digital is designed to help businesses eliminate common errors and save time managing their tax affairs, and part of the overall digitalisation of UK Tax.
In a recent independent study of over 2,000 businesses, 69% reported experiencing at least one benefit from Making Tax Digital. These included preparing and submitting returns faster and increased confidence that they were getting tax right. 67% of businesses also felt Making Tax Digital had reduced the potential for mistakes in at least one aspect of the record keeping, preparing and submitting returns process.
As of December 2021, nearly 1.6 million taxpayers had joined Making Tax Digital for VAT with more than 11 million returns successfully submitted.
In 2020, the government published ‘Building a trusted, modern tax administration system’, setting out a vision of a UK tax system fit for the 21st century, designed to improve its resilience, effectiveness and support for taxpayers. Making Tax Digital is the first phase of a move toward this modern, digital tax service.
Since April 2019, businesses with a taxable turnover above £85,000 have already been required to follow Making Tax Digital, keeping digital records and filing VAT returns using Making Tax Digital compatible software.
In July 2020, it was announced that all VAT-registered businesses must file digitally through Making Tax Digital from April 2022, regardless of turnover. HMRC is now reminding businesses below the £85,000 threshold of the steps which they need to take to be ready.