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MAKING TAX DIGITAL
Making Tax Digital deadlines for VAT
Making Tax Digital (MTD) is a government initiative to digitise the tax system.
Making Tax Digital is designed to make it easier for individuals and businesses to file their tax returns and make payments. It also aims to reduce the £9bn of tax revenue that’s lost every year due to incorrect submissions.
VAT was the first type of tax to be subject to the scheme. In April 2019, VAT-registered businesses with an annual taxable turnover above £85,000 had to start using digital links to submit their VAT returns. From April 2021, the option to make XML submissions was removed from the HMRC website.
From April 2022, all VAT-registered businesses and organisations must follow Making Tax Digital rules on their VAT return.
Here’s more about what has changed and what it all means.
Digital links: The next step in Making Tax Digital for VAT
According to the Making Tax Digital for VAT rules, a business can use more than one piece of software or spreadsheet for its tax records. However, the data cannot be copied and pasted between them manually. Instead, there must be a digital link to automate the process.
Do you use one piece of software for record-keeping and another for submission? Or perhaps you use multiple spreadsheets for your accounting. If so, how can you make sure they all work together?
The answer is a digital link.
You’ll need to use digital links if your business uses spreadsheets for any part of your VAT record.
Here are more examples of where digital links will be required.
Creating digital links can be challenging for some small businesses, but MTD software, like QuickBooks, can make your life easier. It calculates your VAT automatically so you can submit it to HMRC in a single click.
Due to the ongoing pandemic, HMRC has extended the deadline for businesses to include ‘digital links’ in their VAT returns until 1 April 2022.
Do I have to register for Making Tax Digital?
Whether you have to register for Making Tax Digital or not depends on whether your business is, or should be, VAT-registered.
Businesses with a taxable turnover above the VAT threshold
All UK businesses with a taxable turnover above the VAT threshold (£85,000 in 2020/21) have been required to follow the Making Tax Digital rules since April 2019. If you’re VAT registered and don’t sign up for Making Tax Digital, you could get a penalty from HMRC.
VAT-registered businesses with a taxable turnover below the VAT threshold
If your taxable turnover is below the VAT threshold, you may have already signed up to MTD voluntarily. If this is the case, you will have to follow the Making Tax Digital rules for your VAT return from April 2022.
Making Tax Digital for VAT becomes law for all VAT-registered businesses from April 2022.
Businesses that aren’t registered for VAT
If your business isn’t registered for VAT, Making Tax Digital won’t affect you yet. However, as soon as your taxable turnover exceeds £85,000 for any 12-month period, you must register for VAT and follow the MTD requirements. You have to register within 30 days of the end of the month you went over the threshold.
Delayed Making Tax Digital deadline approaches
Due to the impact of the pandemic, some of the rules relating to Making Tax Digital for VAT have been delayed, but the extended deadline is fast approaching.
Initially, VAT-registered businesses that have signed up for MTD were required to put digital links in place by 1 April 2020. Those rules will now come into effect in the VAT period starting on or after 1 April 2022.
If you run a VAT-registered business that hasn’t implemented digital links yet, you must act quickly to put them in place.
HMRC’s 12 month ‘soft landing period’ which allowed UK businesses to use XML instead of digital links ended in April 2021. From that point on, using Making Tax Digital software has been recommended and will be mandated from April 2022.
Other Making Tax Digital deadlines
VAT is the first area of focus for Making Tax Digital. Income Tax and Corporation tax will be added next.
Below, we list the major Making Tax Digital deadlines that you should be aware of.
April 2021: XML submissions are discontinued
In the next step towards Making Tax Digital for VAT, HMRC will be closing the option to submit returns via XML from April 2021. Users who don’t use HMRC-recognised MTD software at this stage will have to log into their Business Tax Account with HMRC and enter their tax return numbers manually.
April 2022: Making Tax Digital for VAT
From 1 April 2022, all VAT-registered businesses must sign up for MTD regardless of their turnover. They must also use a compatible software package that connects to HMRC systems. If more than one software package or spreadsheet is used, it must be digitally linked.
April 2026: Making Tax Digital for Income Tax
From April 2026, self-employed workers and landlords who declare an income of over £50,000 via Self Assessment tax returns must register for Making Tax Digital for Income Tax Self Assessment (MTD for ITSA). From April 2027, this also affects those with an income over £30,000.
Self Assessment and Income Tax returns will have to be submitted quarterly, but tax payment dates will remain the same.
Making Tax Digital for Corporation Tax
Corporation Tax will be the final tax to become digitalised and there is no published deadline yet. Businesses will be required to maintain digital records and provide quarterly updates of income and expenditure to HMRC. They'll also have to prepare and file their Corporation Tax return using MTD-compatible software.
Why get ready for Making Tax Digital now?
This is the perfect time to get ahead so your business is ready when it needs to be in time for the upcoming Making Tax Digital deadlines. If you’re VAT registered and use MTD accounting software already, the move to compulsory electronic uploads will be business as usual.
Why choose QuickBooks’ Making Tax Digital software
Be ready for HMRC's changes with QuickBooks’ Making Tax Digital Software. Track your VAT and prepare your return, then use the VAT error checker to scan your return for common errors, duplicates and anomalies before submitting directly to HMRC.