Posted on: 24/03/2021

News

Phase 2 of the Making Tax Digital (MTD) regime will come into force on Thursday 1st April 2021.

From that date, all UK VAT-registered businesses with taxable turnover above the £85,000 VAT registration threshold, with a few exceptions, will have to keep records in fully digital form and file VAT returns using MTD compatible software. 

When MTD was introduced in 2019, businesses could use spreadsheets that were not fully digitally compliant to keep records and transfer data for digital filing. But for VAT periods starting after 31 March 2021, the manual transfer of data will not be allowed. 

Once you have entered data into the software used to keep and maintain digital records, you will have to use digital links with no manual intervention for all further transfers, recaptures or modifications of those data. Businesses will still be able to make some calculations outside the digital records software, for example for a capital goods scheme adjustment. 

In another change, from 1 April 2022, compulsory MTD filing will be extended to the one million voluntarily registered businesses trading below the VAT registration threshold. 

Further ahead – from 2026 at the earliest – HMRC has indicated that it intends to widen the scope of MTD to corporation tax. Every company will need to keep digital records and use MTD compatible software to submit their annual company tax returns and provide quarterly updates of income and expenditure to HMRC.