Making Tax Digital (MTD) for VAT: 5 Misconceptions Busted
The UK government's plans to make tax digital have been shrouded in controversy since they were first announced. There has been a lot of misinformation floating around, and many people are unsure about what the changes will mean for them. In this blog post, we will dispel some of the misconceptions about making tax digital for VAT and give you the facts.
The Making Tax Digital (MTD) for VAT scheme rolled out on 1 April 2019 for VAT-registered businesses with taxable business income of £85,000 or more, however, from 1 April 2022 all VAT registered businesses regardless of the size of income must sign up for MTD for VAT.
There are many benefits to MTD for VAT, but many business owners are apprehensive about the change, fearing it will mean more stress, fear, and penalties. Let's take a look at some of the incorrect assumptions about MTD for VAT and talk about what the truth is instead…
1 - HMRC Will See All of Your Data
This is a common misconception about MTD for VAT. The scheme does require quarterly updates but the amount of data you reveal to HMRC remains the same. With your VAT return, for example, you will still fill in the same nine fields of information but you will simply do it digitally.
Quarterly updates will actually encourage business owners to stay on top of their finances and give them a better insight into their cash flow.
2 - You Will Pay More Tax
MTD for VAT is not about creating a heftier tax bill; it's about reducing errors and fraud. When businesses are able to submit accurate tax returns more quickly and easily, it minimises the chances of mistakes being made. This means that you are likely to pay the right amount of tax - no more, no less.
In addition, MTD for VAT will help to reduce the administrative burden on business owners, so everyone can focus on more important things.
3 - Tax Returns Will Take Forever to Complete
This is another common misconception about MTD for VAT. The reality is that tax returns will take the same amount of time to complete - or quite possibly less. The main difference is that you will be doing them digitally instead of on paper. You won't have to spend hours poring over your accounts - the software does all of the hard work for you.
This also means that there is less opportunity for human error, meaning your tax return will be more accurate.
4 - MTD Means No More Tax Returns
MTD involves quarterly updates but this doesn’t mean that you won’t have to complete tax returns anymore.
The quarterly updates are in addition to your annual year-end obligations - they are not a replacement for them.
5 - Small Businesses Don't Need to Worry About MTD for VAT
Currently, VAT registered businesses with a taxable income of under £85,000 per year are not required to participate in MTD for VAT, but this will change from 1 April 2022. This means all VAT registered businesses regardless of the size of income must sign up for MTD for VAT by 1 April 2022, so it's best to take steps to prepare for the change now.
The truth is that all VAT registered businesses need to be prepared for MTD for VAT, sooner rather than later in order to be compliant by April 2022.
The sooner you start getting ready, the smoother the transition will be. This means it's a good idea to begin digitising your accounting process and using MTD-compliant software so that you're ready, come 1 April 2022.
From My Business to Your Business
There are a lot of misconceptions about Making Tax Digital, but the truth is that the scheme has many benefits. It reduces the chances of mistakes and fraud, and it makes tax returns easier to complete.
The sooner you start getting ready, the smoother the transition will be.
You're very welcome to get in touch with Grace Certified Accountants if you have any questions. Book a Free Call directly into my diary HERE.
Director & Managing Partner
Grace Certified Accountants
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