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Although the implementation of this campaign has gone beyond the original proposed timeline, the VAT leg of the Making Tax Digital journey is complete and will be fully implemented from 01 April ’22, possibly impacting 1.1 million small businesses..
Making Tax Digital requires businesses to keep records digitally and submit returns using applicable software. This requirement started in April 2019, with only VAT-registered businesses with a taxable turnover above the VAT threshold being required to follow the new Making Tax Digital rules. From 1 April 2022, all VAT-registered businesses will be required to follow these rules, irrespective of their level of turnover.
The change to keeping records digitally may not seem drastic to many, as it is increasingly more common for businesses to store records in this way. However, as HMRC are removing the ability to submit VAT returns on their online portal, these returns must be submitted using compatible and accepted software by HMRC, showing a clear digital journey from record keeping to submission.
This could pose quite a challenge to some businesses. Systems and processes used previously may no longer be accepted under the Making Tax Digital rules. For some, only a few upgrades may be needed. For others, this may mean completely new systems or software will be required. Either way, detailed reviews on the quality of accounting data will be needed. Given the potential for the number changes that could be needed, it is important that businesses put a plan in place well in advance of the 1 April 2022 deadline.
Understandably this will be frustrating to many, as there will inevitably be an increase in time and cost with implementing these new processes. Businesses have faced a lot of adversity in 2021, not only from having to navigate through the Covid-19 pandemic and the unprecedented issues brought by it, but also by the raft of changes included in the world of VAT and Customs following Brexit.
However, fully understanding and implementing these changes now may have a future benefit to your business. The journey to be ready for Making Tax Digital for VAT may end on 1 April 2022, but as lined out by HMRC’s roadmap, the journey of Making Tax Digital for other taxes will soon begin.
We will inevitably see further uncertainty as we continue to adjust to the Covid-19 pandemic. But getting Making Tax Digital right at this stage will provide a strong foundation to balance the new campaigns with your other important business needs. So the question remains, are you ready?