Making Tax Digital (MTD) MTD for VAT
VAT can affect competition. A plumber, for example, who sells only to the general public, will be at a disadvantage if he has to register for VAT. He may have to charge up to 20% more than a plumber who is not registered to earn the same profit. On the other hand, if the same plumber only works for other VAT registered businesses, such as building companies, then it will not matter whether he is registered because the customer will generally be able to recover the VAT that is charged. Indeed, in general, a business that always sells to other VAT registered businesses will normally register, even if below the annual limit, because then it can reclaim VAT on purchases and expenses. This will improve profit and can be especially relevant for new businesses because there are often high initial set up costs that carry VAT. On the other hand, registration comes at the cost of having to meet record keeping requirements, a need to submit online VAT returns and pay online and on time. Tax Tip When you first register for VAT you can reclaim input tax on goods purchased up to four years prior to registration provided they are still held when registration takes place. VAT on services supplied in the six months prior to registration may also be reclaimed.
MTD for VAT is part of a government strategy which will ultimately require taxpayers to move to a fully digital tax system. Under the MTD for VAT rules, all VAT registered businesses must keep digital records for VAT purposes and provide their VAT return information to HMRC using MTD functional compatible software. There are some exemptions from MTD for VAT. However, the exemption categories are tightly drawn and are unlikely to be applicable to most VAT registered businesses. We can help you to meet your MTD for VAT obligations. MTD for IT MTD for IT was originally expected to be introduced from April 2024. This has now been delayed; businesses, self-employed individuals and landlords with income over £50,000 will be mandated to apply MTD from April 2026. Those with income over £30,000 will be mandated from April 2027 and the government will review the application of MTD for smaller businesses. We can help you assess when MTD will be required for your business and to meet your obligations.
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