Extension of Making Tax Digital for VAT – is your organisation prepared?

Insight /  14 December 2021

With just six months to go until HMRC’s Making Tax Digital (MTD) for VAT scheme is extended to include all VAT-registered organisations, many more charities must now prepare for the significant changes to the way they will be required to submit their VAT returns from 1 April 2022.

MTD is part of the UK government’s ten-year strategy to simplify the tax system – making it more efficient and effective, and easier for both individuals and organisations to get their tax right and keep on top of their affairs.

Since 1 April 2019, all VAT-registered charities and businesses with a taxable turnover that exceeded the VAT registration threshold (currently £85,000) have been required to keep their VAT records digitally and submit their VAT returns to HMRC using compatible third-party software. From Spring 2022, however, this requirement is being extended to all VAT-registered organisations regardless of level of turnover, putting around 1.1m more within the scope of Making Tax Digital for their first VAT return period commencing on or after 1 April 2022.

UNW’s VAT Partner, Mark Hetherington, said: ‘When MTD was introduced for organisations with a taxable turnover of over £85k it was done over two stages and indeed the second stage was deferred a further twelve months because of representations from businesses; the first being the method in which a VAT return is submitted online to HMRC, and the second seeing the requirement for digital links flowing through an organisation’s accounting software through to the VAT return submission. The change from next April combines both into a single stage and is unlikely to be an easy process for small organisations to implement (although inexpensive bridging software does offer a solution to the actual VAT return filing).

Most charities will have a significant proportion of their activities regarded for VAT purposes as either non-business or VAT exempt and their current VAT processes are only likely to cater for a small part of the charity’s income generating activities and input tax entitlement. In addition, it is likely that VAT return workings are heavily reliant on manual intervention which is not compatible with HMRC’s concept of digital records, so it is hoped that HMRC adopt a sympathetic approach when looking to whether a charity is actually MTD compliant.’

Government guidance is available at www.gov.uk

If you are uncertain of any of your organisation’s obligations under MTD, regarding the switch to the new form of VAT return submission or keeping business records in the required digital format, please do not hesitate to get in touch.