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Making Tax Digital: Getting ready for the next step

Making Tax Digital for VAT is being rolled out to even more businesses in the UK. The soft-landing period ends 31 March 2021, and after that, small businesses will join the initiative from April 2022.

27th Aug 2020
Content Executive BTCSoftware
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HMRC's goal is to become "one of the most digitally advanced tax administrations in the world". Moving to digital tax began with MTD for VAT in 2019 when businesses with a taxable turnover above the VAT threshold joined the scheme.

There were criticisms at first, with HMRC’s chief executive at the time Sir Jon Thompson defending long wait times and unexpected call termination for customers and agents attempting to call the MTD for VAT helplines.

In a letter to Nicky Morgan in June 2019, HMRC’s Thompson addressed concerns over the standard of service, saying that the diversion of staff to Brexit preparations for customs and excise impacting their Making Tax Digital performance. However, in response to helpline demand, HMRC doubled the number of agents available on the VAT desk.

Almost eighteen months since the launch of MTD for VAT, HMRC and HM Treasury have released a report titled Building a trusted, modern tax administration system, which states:

"Making Tax Digital is the first phase of a modern, digital tax service. It allows businesses more time to maximise business opportunities and helps to foster good financial planning. This integrated approach to business administration and tax means that many of the existing paper-based or manual processes are eliminated, and time spent on administration is reduced."

The report looks towards the next steps for the digital transformation as the government believe that "now is the right time to plan the extension of Making Tax Digital" – beginning with MTD for VAT rolling out to all UK VAT-registered businesses from April 2022.

Soft landing period

For businesses with turnover above the VAT threshold, it's a great time to review Making Tax Digital systems and processes. Their software should be affordable with a host of features and unlimited support.

Accountants and agents supporting clients in their VAT obligations should begin identifying any businesses which are struggling to comply with digital record-keeping rules. After 31 March 2021, HMRC will start penalising businesses who are not MTD for VAT compliant.

Bridging software remains a viable and long-term option for businesses looking to manage their costs by maintaining their existing digital record-keeping methods. For agents, it provides the flexibility to accept their clients' digital records from multiple systems. Early in the MTD for VAT rollout, it was unclear if Excel would continue to be recognised as a digital record-keeping system, however as the project has progressed HMRC has confirmed that the use of Excel will remain compliant.

Small businesses

HMRC will bring small businesses with turnover below the VAT threshold onto the Making Tax Digital for VAT scheme from April 2022. That means that now is the perfect time to start understanding the rules, find software, and establish processes. Agents supporting small businesses should begin the process of onboarding them as soon as possible – giving them plenty of time to adjust to the MTD for VAT rules around digital record-keeping and digital links ahead of the go-live date.

The journey so far and your next steps

This free download from BTCSoftware draws on their experiences so far with MTD for VAT. In an easily digestible format, you can learn:

  • Why HMRC launched its digital initiative
  • The core components of Making Tax Digital
  • How the Coronavirus crisis has changed the timeline
  • What HMRC's Making Tax Digital report revealed
  • The lessons learned since the launch of MTD for VAT
  • How small businesses and their agents can prepare
  • The next steps for businesses and their agents

Award-winning BTCSoftware is available to help agents and businesses with their MTD for VAT software needs. To talk to one of their friendly team, call 0345 241 5030 or email [email protected] You can also find them online.