LITRG warns newly registered traders not to overlook digital tax registration

Under MTD, VAT-registered businesses must keep digital records and use MTD-compatible software to submit their quarterly VAT returns. 

For newly registered businesses, complying with MTD for VAT is now compulsory from their first VAT return period, unless they apply to HMRC for exemption from MTD for VAT¹ and this is granted. But currently the VAT registration process does not always automatically deal with the MTD for VAT sign up too. In addition, HMRC’s current guidance on registering for VAT does not alert people to the MTD for VAT requirements. 

Sharron West, Technical Officer for the Low Incomes Tax Reform Group (LITRG), explained: 

“HMRC should amend their guidance as soon as possible so that businesses looking to register for VAT, who do not have professional advisers, are made aware of their MTD obligations at the earliest opportunity. These include the need to keep digital records and to file their VAT returns through third-party software. The guidance should also explain how to obtain an exemption from the digital requirements where the relevant conditions are met.” 

For existing VAT registered businesses, complying with MTD for VAT became mandatory for around 1.3 million of them on 1 April 2019 and for the remaining 1.1 million businesses who are voluntarily registered for VAT on 1 April 2022. Recent estimates are that around 10% of those for whom it became mandatory in April 2019 are still to sign up, and two-thirds of the voluntarily registered VAT population should be signing up over the next few months², depending on when their VAT return quarters are.  

LITRG understands that HMRC have developed a new registration service that joins VAT registration and MTD registration together but this is still being rolled-out. 

Sharron West continued: 

”HMRC should highlight MTD obligations at every opportunity. As well as amending the guidance on VAT registration, HMRC should move forward with their new VAT registration system as quickly as possible as this will allow businesses to sign up to MTD at the same time as registering for VAT.    

“However HMRC need to ensure that the new system makes people aware of the rules for claiming exemption from MTD for VAT and explains how to do this, otherwise businesses may be automatically signed up to MTD for VAT when they should be exempt. 

“With Making Tax Digital for Income Tax on the horizon and applying to a much bigger population of around 4.3 million, HMRC must ensure they learn lessons from the rollout of MTD for VAT otherwise there will be some significant bumps in the road for MTD for Income Tax in due course.”  

Notes

1. For more information on exemption from MTD for VAT see GOV.UK 
2. The sign up windows for existing businesses are explained on LITRG’s website 

Low Incomes Tax Reform Group

The LITRG is an initiative of the Chartered Institute of Taxation (CIOT) to give a voice to the unrepresented. Since 1998, LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes. 

The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. The CIOT’s 19,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.