the myths of making tax digital (MTD)

From April 2019, MTD VAT is mandatory for VAT-registered businesses and organisations (including sole traders, partnerships, limited companies, non-UK businesses registered for UK VAT, trusts and charities) with taxable turnover above the VAT threshold.

Here are some of the myths...

Under Making Tax Digital (MTD) for VAT, businesses will have to provide more information than they already do

This is not correct: no business will need to provide information to HMRC more regularly than they do now, nor send any additional information.

Businesses above the VAT threshold can choose not to join MTD for VAT and continue to submit returns as they always have done.

This is not correct: businesses above the VAT threshold were required to join MTD and submit their VAT returns using the new service for their first VAT period which began on or after 1 April 2019.

MTD won’t reduce errors

This is not correct: keeping records on paper and submitting VAT returns to HMRC manually results in errors – in a YouGov poll 61% of businesses said they have previously lost receipts– and errors also occur in the manual transposition of data and manual calculations.

MTD offers a more integrated approach to business administration and tax, reducing the time businesses spend on administration in the longer term and making it easier for them to get their tax right.

An independent evaluation of MTD’s impact on record-keeping behaviour and scope for error among small businesses published in March 2020 found that that businesses that subscribed to MTD for VAT with fully integrated accounting and tax software reported spending less time on their tax.

The cost and admin burdens of MTD are prohibitive for most businesses

This is not correct: there are MTD-compatible solutions available at no or low cost for most businesses, including free products (with varying conditions of use).

Costs will differ from business to business and are influenced by the size and complexity of the business and their degree of digital capability, as well as the type of functionality they want their software to include. Most businesses will be able to claim any costs for hardware and software against their tax.

MTD also provides many wider benefits to business and our MTD case studies (available on our YouTube and GOV.UK channels) feature some of the benefits businesses have experienced from making the move to digital record keeping.

Small businesses should be automatically exempt

This is not correct: the smallest businesses are currently exempt from MTD for VAT but can join voluntarily. Around a quarter of businesses below the VAT threshold have already chosen to sign up and experience the benefits digital record keeping has to offer, in advance of MTD being extended to those below the threshold in April 2022. Businesses that cannot go digital will not be required to do so.

Eventually you will not be able to use spreadsheets or bridging software under MTD

This is not correct: businesses can choose to use spreadsheets to both maintain digital records and perform tax calculations, provided the spreadsheets combine with some form of ‘bridging’ software that will allow their VAT return data to be sent to HMRC from the spreadsheet.

However, users will get the maximum benefits from MTD – fewer errors, increased productivity and better financial planning by using dedicated MTD software which provides an efficient end-to-end experience with a return submitted to HMRC at the touch of a button

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