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Businesses below VAT threshold to be exempt from Making Tax Digital, Treasury announces

Businesses with a turnover below the VAT threshold will be exempt from digital tax reporting, it has been announced.

The Treasury said the smallest of businesses will be able to choose when to move to the new digital system.

However, it means that any business earning £85,000 or more will be forced to use the Government’s reformed tax system for VAT purposes as planned from 2019.

HM Revenue & Customs (HMRC) said businesses will have to make the switch for all other taxes from 2020.

Under previous plans, the ‘Making Tax Digital (MTD)’ exemption threshold was set at £10,000, and landlords and sole traders would be forced to use MTD from April 2018.

The Treasury said it accepted the need to slacken the timetable and mandation around MTD in order to ensure businesses are able to comfortably transition.

MTD requires businesses to update HMRC on their finances on a quarterly basis, doing so using digital tax software and HMRC’s own digital tax portal. While VAT is already reported on a quarterly basis, many smaller businesses warned that they would not have the resources or tools prepared in time to comply.

Mel Stride, Financial Secretary to the Treasury and Paymaster General said: “Businesses agree that digitising the tax system is the right direction of travel. However, many have been worried about the scope and pace of reforms.

“We have listened very carefully to their concerns and are making changes so that we can bring the tax system into the digital age in a way that is right for all businesses.”