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Making Tax Digital: Your Company Checklist

All UK businesses have doubtless heard of Making Tax Digital (MTD).

While MTD isn't mandatory for all VAT returns until April 2022, the SAS Accounting team regularly hears from clients concerned about the endless reminders and wanting to know what they can do to prepare!

The great news is that companies over the VAT threshold of £85,000 are already using MTD to submit their returns. That means many of the initial glitches have been ironed out.

In this blog, we'll run through how MTD works and ways to ensure your company is ready for the switch over next spring.

Businesses Impacted by Making Tax Digital in April 2022

We've mentioned the need for VAT submissions via compatible software for companies over the registration threshold - but there are still a sizable number of businesses yet to be impacted.

Around 700,000 companies are registered for VAT but below the threshold.

From next spring, the essential change is that you won't be able to submit your VAT returns via the HMRC website as you might do now.

One of the easiest ways to ensure compliance is to use bookkeeping software such as Xero.

SAS Accounting offers a comprehensive range of services to help with this changeover if your current software isn't MTD compatible and won't be fit for purpose.

Please have a look at our Xero Tips as a great starting point, or get in touch for information about a switchover service to ensure your bookkeeping transition runs smoothly.

Note that while much of the new MTD rules focus on submissions, you'll also need to consider how you store VAT information, as these records need to be digitally linked.

Again, that's all very straightforward with compatible software, which manages much of this for you.

Making Tax Digital Exemptions

There are some exemptions to MTD, although the final decision will be down to HMRC. For example, you could claim an exemption if:

  • You have a disability or circumstance that means you cannot use digital tools.
  • Your religious beliefs are not compatible with the requirements.
  • Your business is subject to insolvency proceedings.

If you believe that you have a case for exemption, the best move is to contact the VAT Helpline to discuss alternative options.

Preparing Business Processes for MTD

As well as software requirements now is a great time to consider the processes and systems that impact your VAT recording.

For example:

  • Raising sales invoices with a VAT element.
  • Capturing your expenses and the VAT paid.
  • Variable accounting schemes, such as invoice-based or cash accounting.
  • Paper-based VAT records that aren't included on your software.

It's wise to look at software installation ahead of time to ensure that you're confident in how the returns submissions work and that all of your VAT transactions are being correctly recorded.

For some businesses, the most significant impact may be that you cannot raise manual invoices or documents without inputting those transactions onto your software.

Other companies may use paper-based systems and simply upload the totals at the end of the month - this will not be acceptable with MTD.

UK businesses with alternative VAT schemes will have different processes and are strongly advised to get in touch with SAS - that includes systems such as Flat Rate, Margin Scheme or the Tour Operators Margin Scheme.

Deciding When to Switch to MTD

Finally, you can switch to MTD now if you prefer. The system has been live since April 2019, and you don't need to wait until 2022 to transfer over if you wish.

The registration process is simple:

  1. Register for MTD for VAT.
  2. Activate the MTD feature in your software.

We'd recommend testing the software functionality first to ensure that your recording systems and any new processes are all working seamlessly.

There may be benefits to switching to MTD early, in that the period in April 2022 will inevitably be hectic, and it may prove challenging to receive assistance through the MTD helpline.

Making a switch sooner could be beneficial to ensure you have all the training and software processes in place.

For more assistance with MTD software compatibility or understanding how MTD may impact your internal processes, please contact the SAS Accounting team at your convenience for further advice.