Making Tax Digital - VAT
Making Tax Digital (MTD) makes it easier for businesses and individuals to record and declare tax to HMRC. Under the new rules, HMRC require eligible businesses to record transactions digitally
and submit VAT returns to HMRC using compatible accounting software.
From 1st April 2022, it became a legal requirement for all VAT registered businesses to register for Making Tax Digital (MTD). This follows the first tranche of MTD in April 2019, which was specific to businesses with an annual turnover above the VAT threshold of £85,000.
MTD has been introduced to save businesses time when managing their tax affairs and to eradicate common errors.
Who does this affect?
The changes require ALL VAT registered business, irrespective of annual turnover, to become MTD registered and compliant. This includes maintaining digital records and filing VAT returns using MTD compatible software.
How do I register?
Businesses should have signed up to MTD prior to their first VAT return starting on or after 1 April 2022 and should ensure that they are signed up at least 5 days after their last non MTD Vat return deadline date, and no less than 7 days before their first MTD return deadline date. If you are
not registered prior to this, you may have to pay your VAT twice.
How should I keep my records?
Businesses will now need to keep digital accounting records. Digital records can be achieved by using compatible accounting software, such as Xero, QuickBooks, Sage, and many others. Where businesses decide not to use an accounting software, an alternative option is to use bridging software. Businesses can maintain spreadsheets which are used in conjunction with the bridging software. Digital links must be in place to ensure records are kept digitally as information is passed between the different platforms.
Bridging software can be a more cost effective and simpler option for businesses who are not yet able to move to an accounting software.
Where businesses currently use a desktop or cloud-based accounting software, you will need to ensure that the package is fully compliant with MTD. The best way to check this is to contact your accountant or client manager, or alternatively, you could contact the software provider directly.
Businesses will no longer be able to submit VAT returns via the HMRC Business Tax Account.
Are there any exemptions?
There are some MTD exemptions if it is not reasonable or practicable for businesses to use digital tools for their tax. Businesses would have to apply for an MTD exemption via the GOV website Apply for an exemption from Making Tax Digital for VAT – GOV.UK (www.gov.uk). Businesses that have previously received exemptions from digital filing will continue to have exemptions to MTD requirements.
What are the next steps?
Businesses who have failed to sign up in time or have failed to retain digital records or digital links may be charged penalties. If this is the case, it’s vital to put the correct controls in place now.
To sign up to Making Tax Digital VAT, businesses, or an agent on a businesses’ behalf, need to:
- Visit GOV.UK and choose Making Tax Digital-compatible software
- Keep digital records starting from 1 April 2022 or the beginning of their VAT period
- Sign up and submit their VAT Return through Making Tax Digital
- If in doubt, speak to Elsby today
Our cloud accounting credentials
We don’t just understand digital and cloud accounting, we excel at it. We are a Xero Platinum Partner and were the first accountancy firm in the world to receive a Xero migration certification. Our 5-star ratings on Reviews.io and Google are a result of the strong relationships, satisfaction and trust we have built with our clients.
We can support you with the following:
- Transitioning to accounting software, including advising on the best options and providing software training
- Providing bridging software
- Registering for MTD
- Reviewing current processes and VAT returns for confidence of compatibility
- Advice/support on claiming MTD exemptions