Phase Three of Making Tax Digital for VAT

Making Tax Digital (MTD) for VAT was initially rolled out for VAT registered businesses with turnover above the VAT registration threshold of £85,000 in April 2019.

• Phase one, in April 2019, required businesses with an annual turnover above the UK VAT registration threshold to submit their VAT returns electronically. 
• Under phase two, businesses were required to have in place digital links between their source/original data all the way through to the final VAT return figures submitted to HMRC. Originally planned for April 202, this phase was delayed until April 2021 due to the COVID pandemic. 

Our previous blogs outlined the requirements for phases one and two of MTD for VAT. 

However, as of 1st April 2022, phase three will see MTD for VAT extended to all VAT registered businesses, regardless of turnover. If your business fails to be MTD compliant, you may face financial penalties (more on this to follow).  

What is changing from 1 April 2022? 

From the first VAT period starting on or after 1 April 2022, VAT registered businesses with an annual turnover below the VAT registration threshold that have not voluntarily signed up to MTD will now be required to sign up.  

In effect, from the first VAT period starting on or after 1 April 2022, all VAT registered businesses, including self-employed businesses and landlords, regardless of annual turnover will be required to sign up for MTD.  All VAT registered businesses will need to: 

• Keep their VAT records digitally; as well as 
• Submit VAT returns to HMRC through MTD compatible software. 

Unlike earlier phases, there is no ‘soft landing’ period for phase three of MTD.  Consequently, if you are not already signed up for MTD, it is important that you: 

• ensure your processes are MTD compliant; and 
• are signed up by the relevant date.  

What are the relevant dates? 

Depending upon whether you submit monthly returns or on which VAT stagger you are on, the following are the key dates: 

VAT Return Periods	First VAT return affected by MTD	VAT return submission date
Monthly	April 2022 (04/22 VAT return)	7 June 2022
Mar/Jun/Sept/Dec	June 2022 (06/22 VAT return)	7 August 2022
Jan/Apr/Jul/Oct	July 2022 (07/22 VAT return)	7 September 2022
Feb/May/Aug/Nov	August 2022 (08/22 VAT return)	7 October 2022

 

Importantly, if you pay your VAT bill by direct debit, if you don’t sign up at the right time this can cause HMRC to take duplicate payments or, potentially, not take payment at all. For those businesses paying by direct debit, HMRC recommends that a business should sign up for MTD: 

• at least 7 days before the first Making Tax Digital return is due, but 
• at least 5 days after the last non-Making Tax Digital return is due. 

Next Steps 

We supported the successful implementation of phases one and two of MTD for several clients and continue to support clients that do not have the relevant software to submit their returns through our MTD compliant bridging solution.  

For those businesses caught by phase three, if you are unsure that your current software is MTD compliant, please contact us and we can advise on the compatibility of your software. If required, we can provide advice on alternative software solutions or access to our bridging solution.  

If you have concerns about complying with your requirements under MTD for VAT, please contact Alistair Duncan, Director and Head of AAB’s dedicated Indirect Tax team, or your usual AAB Contact.

Find out more about our VAT & Duty team.