Since 6 April 2019, VAT-registered clients whose VATable turnover is above the VAT registration threshold, currently £85,000, have been required to comply with MTD for VAT. This means that they must keep digital records and provide their VAT return information to HMRC via MTD-compatible software. Once a client has joined MTD for VAT, they must remain within it even if their VATable turnover falls below the VAT registration threshold.
Hitherto, MTD for VAT has been optional for VAT-registered businesses whose turnover has remained below the VAT registration threshold. However, once a client has opted to join MTD for VAT, they must continue to comply with the requirements.
The next stage of MTD for VAT is its extension to VAT-registered businesses with VATable turnover below the VAT registration threshold who have not opted to join MTD for VAT voluntarily. From their first VAT period starting on or after 1 April 2022, such clients (which may include self-employed clients and landlords) will be required to operate MTD for VAT.
VAT-registered clients not already within MTD for VAT will need to prepare to join. This will include maintaining digital records if they do not already do so and, where they file their own VAT returns, sourcing MTD-compatible software.
Clients who have chosen to register for VAT voluntarily and whose turnover is likely to remain below the VAT registration threshold may wish to assess whether, in light of the obligations imposed by MTD for VAT, this remains beneficial. If they decide that remaining VAT-registered is no longer worthwhile, for example, where the costs of complying with MTD for VAT outweigh the VAT recovered as a result of their registration, they should de-register prior to the start of their first VAT period starting on or after 1 April 2022.
Written by the Tax Advice Network