Newly registered businesses reminded to sign up for MTD

Traders who are about to register for VAT are being reminded that they must also sign up for Making Tax Digital (MTD).

MTD for VAT is now mandatory for all VAT-registered businesses, which means that these firms must keep digital records and use MTD-compatible software to submit their quarterly VAT returns.

The Low Incomes Tax Reform Group (LITRG) highlights that HMRC’s current guidance on registering for VAT does not alert people to the MTD for VAT requirements.

Sharron West, Technical Officer for the LITRG, said, “HMRC should amend their guidance as soon as possible so that businesses looking to register for VAT, who do not have professional advisers, are made aware of their MTD obligations at the earliest opportunity. These include the need to keep digital records and to file their VAT returns through third-party software. The guidance should also explain how to obtain an exemption from the digital requirements where the relevant conditions are met.”

For existing VAT-registered businesses, complying with MTD for VAT became mandatory on the 1^st of April 2019 and for those who voluntarily registered, it was on the 1^st of April 2022.

Data shows that around 10% of those for whom it became mandatory in April 2019 are still to sign up, and two-thirds of the voluntarily registered VAT population should be signing up over the next few months, depending on when their VAT return quarters are.

Sharron West, added, “HMRC should highlight MTD obligations at every opportunity. As well as amending the guidance on VAT registration, HMRC should move forward with their new VAT registration system as quickly as possible as this will allow businesses to sign up to MTD at the same time as registering for VAT.

“However HMRC need to ensure that the new system makes people aware of the rules for claiming exemption from MTD for VAT and explains how to do this, otherwise businesses may be automatically signed up to MTD for VAT when they should be exempt.

“With Making Tax Digital for Income Tax on the horizon and applying to a much bigger population of around 4.3 million, HMRC must ensure they learn lessons from the rollout of MTD for VAT otherwise there will be some significant bumps in the road for MTD for Income Tax in due course.”

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