All VAT registered businesses in the UK will need to comply with Making Tax Digital (MTD) and file their VAT returns through functionally compatible software that links to HM Revenue & Customs’ (HMRC’s) API platform from 1 April 2022.
Previously, only businesses whose taxable turnover exceeded the VAT registration threshold of £85,000 needed to comply with the requirements of MTD, but from April 2022 this will become mandatory for all VAT registered businesses, including those whose taxable turnover is below the registration threshold, but which are voluntarily registered.
“For some businesses with minimal VAT recovery, de-registration could be preferable to the additional compliance.”
Taxpayers can apply for an exemption from MTD for VAT, but only in very limited circumstances, which may include:
- Location means the taxpayer does not have reliable internet access at their home or business premises (which could be the case for some remote, rural taxpayers), and it’s not reasonable for them to obtain internet access at an alternative location.
- Age or disability means that it is impractical for the taxpayer to use a computer, tablet or smartphone to comply with the requirements.
- Religious grounds mean that the taxpayer is unable to use a computer or the internet.
Other justifiable reasons why it is not reasonable or practical to comply may also be considered.
“HMRC will consider exemption applications on a case-by-case basis. Where the only reasons are additional effort, time or cost to transition or comply, an exemption is unlikely to be given. Those reasons may, however, be taken into overall consideration with other factors.”
HMRC has also delayed the implementation of its new penalty regime for the late filing of VAT returns and payment of VAT, until 1 January 2023. This new regime was due to come into force from 1 April 2022, but HMRC has delayed the implementation due to additional time needed to ensure its IT systems are ready. The current default surcharge mechanism will continue to apply until the deferred new regime is introduced.
Martyn summarises: “Taxpayers having difficulty in paying VAT liabilities on time should discuss their circumstances with HMRC and may be able to agree a ‘time to pay’ arrangement, which can help manage the risk of late payment penalties”.