Making Tax Digital (MTD)
For VAT periods beginning on or after 1 April 2022, it will be compulsory to keep your VAT records in a digital format and to file all your VAT returns using MTD-compatible software. We can help you with this if you are not already MTD compliant, but we need to work together to ensure your accounting system is ready.
Rest assured that you don’t need a completely new accounting system to comply with MTD, but this is a good opportunity to review whether your current processes really meet your business needs. Spreadsheets are counted as digital records, but if that is your only means to record transactions you will need some bridging software to submit the VAT returns to HMRC.
Retail businesses don’t have to record every single sale digitally. They can instead record just the total of the daily takings. However, for all purchases you need a digital record of the date (tax point), net value, and the VAT paid on the item.
Only a very few taxpayers will qualify for an exemption from the MTD regime, on the basis of being ‘digitally excluded’. The extra cost of converting to digital won’t be regarded as a reasonable excuse for non-compliance.
If your turnover is way below the VAT deregistration threshold of £83,000, you may want to consider cancelling your VAT registration. However, after that you won’t benefit from claiming back VAT on expenses. Also, MTD for Income Tax will start from 6 April 2024 for all sole traders with turnover that exceeds £10,000 per year.
