Extension to Making Tax Digital for VAT – Compulsory for all VAT Registered Businesses from 1 April 2022
Making Tax Digital (MTD) originally came into effect from 1 April 2019 for all businesses with turnover in excess of the VAT threshold of £85,000. From 1 April 2022, we will see these changes extend to smaller VAT registered businesses, resulting in all VAT registered businesses operating under the MTD reporting and record keeping obligations.
For all businesses (including self-employed and landlords) who are not currently operating under MTD, this change will become effective from their first VAT return period starting on or after 1 April 2022. This will mean that these businesses will be required to sign up to MTD, keep digital records (for VAT purposes only) and use MTD compatible software to submit their VAT returns to HMRC. We appreciate this could be a significant change for many businesses; specifically in the ways they maintain their accounting records, and how they currently submit their VAT returns to HMRC.
It is expected that this change will apply to approximately 1.1m VAT registered businesses, who currently do not operate under the MTD reporting obligations.
What to do now?
If you’re not already using MTD compliant software to prepare and submit your VAT returns, now is the time to act. As much as embracing digital software might sound like an expensive and time-consuming exercise, there are plenty of options available to assist you with the transition, and we’re more than happy to help with any or all aspects.
Key dates
| VAT return period | First MTD affected VAT return | VAT return submission date |
| Monthly | April 2022 | 7 June 2022 |
| Mar/Jun/Sep/Dec | June 2022 | 7 August 2022 |
| Jan/Apr/Jul/Oct | July 2022 | 7 September 2022 |
| Feb/May/Aug/Nov | August 2022 | 7 October 2022 |
Paying your VAT liabilities
The traditional method of settling your VAT liabilities has been via bank transfer but if you pay your VAT by direct debit, HMRC recommend you sign up at least 7 days before the first MTD return is due and at least 5 days after the last non-MTD return is due. This should ensure that you encounter no difficulties in your payment being collected by the due date.
The implementation of mandatory MTD for VAT was originally going to coincide with the new VAT late submission penalties regime, as mentioned in our last issue (a copy of this article can be found here). The new penalties system applies to all VAT customers, regardless as to whether the submitted VAT returns show a payment or refund due. However, the introduction of the new penalties regime has been delayed to VAT periods beginning on or after 1 January 2023.
More detailed guidance can be found at https://www.gov.uk/government/publications/penalties-for-late-submission/penalties-for-late-submission
Changes to VAT rates within the hospitality industry
In a response to the impact of the Coronavirus pandemic, temporary reduced VAT rates were introduced in the hospitality industry, coming into effect from July 2020.
From 15 July 2020 to 30 September 2021, a reduced VAT rate of 5% was introduced, rising to 12.5% from 1 October 2021 (for a limited period). This reduced rate was available for a range of supplies, including catering (meals and non-alcoholic drinks eaten in and hot takeaway food and drinks), hotel and holiday accommodation along with certain tourist attractions.
The “extended” period is due to end on 31 March 2022, reverting to the standard VAT rate of 20% from 1 April 2022. Businesses must ensure their accounting systems are updated and applying the correct VAT rate from this date. If VAT periods straddle this period, particular care must be taken to ensure the appropriate rates have been used.
If you have any concerns, or questions, on the latest changes across VAT, or indeed anything else, please do make contact with your usual RG contact who will be able to help you.