HMRC extending digital VAT scheme to every business by 2022

Farmers who have so far avoided having to comply with HMRC’s Making Tax Digital rules for submitting VAT returns will have to adopt the system by April 2022.

Since 1 April 2019 businesses with a taxable turnover of more than £85,000 have had to keep records digitally and submit their returns using software, but from April 2022 all businesses will have to use this method, regardless of turnover.

HMRC says the system is designed to reduce record-keeping errors and that firms can voluntarily choose to follow the rules voluntarily, with more than a quarter of those below the threshold already having done so.

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The Treasury is also reportedly planning to roll out the scheme from 2023 to self-assessment income tax returns for business or property income above £10,000 a year. Of the 4.7m entities the changes will cover, about 3.4m are landlords or self-employed.

However, Mike Cherry, chairman of the Federation of Small Businesses, said: “The last thing we need is wholesale expansion of Making Tax Digital without the right support in place.”

He told CityAM the government should be backing small businesses and the self-employed to drive recovery from a severe recession and that the changes would mean more costs and paperwork for small firms at a critical time.

A review by HMRC into the new system, published in March, said more than £41bn of payments and more than £13bn in repayments have now successfully flowed through the new IT system.

More than 83% of businesses in scope signed up to the service, and 95% of those who had signed up on time also successfully made their first return through the service on time.

Some users were finding the transition to the new system difficult, with those using spreadsheets with bridging products, rather than specialist tax software, to submit figures having the most issues.

More information on the scheme can be found on the government website.

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