Making Tax Digital (MTD) is a government initiative designed (in theory) to make tax simpler for taxpayers. Under Making Tax Digital, businesses will have to keep digital records of their income and expenses using specific software, and submit tax returns more frequently.
Making Tax Digital will affect various taxes, including Income Tax, Corporation Tax, and VAT.
What is Making Tax Digital for VAT?
The idea of Making Tax Digital for VAT is to simplify VAT records and returns for businesses. Under the new system, you’ll have to keep all of your VAT records digitally, using software that’s been approved by HMRC. You’ll then use this software to submit your VAT returns to HMRC.
What is the deadline for Making Tax Digital for VAT?
Making Tax Digital will become mandatory for all VAT-registered businesses (including self-employed) from April 2022. Businesses with a taxable income that’s more than the VAT registration threshold (currently £85,000 per year) are already required to use MTD.
What was the soft-landing period for Making Tax Digital for VAT?
When Making Tax Digital for VAT was launched in April 2019, HMRC initially allowed businesses to continue copying and pasting figures into their VAT return until April 2020. This was extended until April 2021 because of the pandemic.
However, this soft-landing period has now ended, which means that you’re no longer allowed to copy and paste data into HMRC’s system. Instead, you have to use ‘digital links’—essentially, an electronic transfer of data between two software programs (in this case, that’s your accounting software and HMRC’s system). This ensures that no mistakes are introduced by people accidentally copying and pasting the wrong figures, for example.