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HMRC research indicates lack of awareness of MTD VAT

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Published: 14 Jun 2022 Update History

The requirement to keep digital accounting records and use MTD VAT compatible software to submit VAT returns was extended to all VAT registered businesses from 1 April 2022. Were those newly subject to MTD VAT requirements ready?

HMRC has recently published results of research, conducted between June 2021 and January 2022, intended to understand the extent of affected VAT registered businesses’ awareness of – and preparedness for – MTD VAT.

Businesses were contacted at random, drawn from the database of VAT registered businesses trading below the VAT threshold (currently £85,000), who were not required to comply with MTD VAT requirements when they were initially introduced in April 2019.

All results referred to below are taken from the second wave of research, which was conducted in December 2021 and January 2022. Although 93% of businesses surveyed stated that they were aware of MTD VAT, over a quarter of these businesses incorrectly believed that MTD VAT did not apply to their business.

Furthermore, at the time of the survey, there was seemingly a general lack of awareness of the specific requirements of MTD VAT. Only just over half (51%) of those surveyed were able to state at least one correct requirement of the MTD VAT rules.

It is worth noting that this wave of research was conducted several months ago. Some of the businesses surveyed (those with a VAT return quarter running from 1 April to 30 June) may not be required to file under MTD VAT until 7 August. ICAEW’s Tax Faculty anticipates that both awareness and understanding of MTD VAT will have increased since the survey was conducted.

HMRC’s latest figures state that, as of 16 May, around 40% of VAT registered businesses trading below the VAT threshold have registered for MTD VAT, the faculty understands. As businesses cannot register until they have filed their final non-MTD VAT return, it is expected that further tranches of businesses will sign up to MTD VAT from 8 June and 8 July (depending on their VAT return stagger).

Nevertheless, it is worth stressing the importance of ensuring that businesses are aware of the impending deadline to sign up to MTD, and the requirements that go with this. Failure to file VAT returns through functional compatible software could lead to a penalty of up to £400 per return.

There is also the expectation that HMRC may close the portal at some point in the future so that businesses are unable to file other than through MTD VAT (unless excluded from filing digitally).

It appears that it is not just smaller businesses that may not be ready for MTD VAT. It is understood that around 10% of VAT registered businesses trading over the VAT registration threshold have not signed up to MTD VAT.

To sign up for MTD VAT

For businesses: Are you ready to submit your next VAT Return using software compatible with Making Tax Digital? - Use software to submit your VAT Returns

For agents: Sign up your client for Making Tax Digital for VAT

Read more from ICAEW on MTD VAT.

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