While Making Tax Digital (MTD) has been postponed for income tax submissions, the 1st April 2022 deadline still applies for businesses registered for VAT.
The change means that even businesses with turnover beneath the registration point (£85,000) need to file according to the digital tax legislation. This regulation has been compulsory for companies over the threshold since 2019.
SAS Accounting has published a Making Tax Digital Checklist previously. Still, given the upcoming deadline, we thought it would be useful to focus on MTD for VAT and the essential tasks ahead if you're not yet prepared.
We appreciate that repeated reminders and HMRC letters can cause no end of stress, so we hope this simple guide helps clarify what you need to do!
MTD for VAT Explained
The rule changes are relatively straightforward - you can no longer submit a valid VAT return via paper copy, and you must make all submissions through the HMRC website.
To do so, you'll need accounting software that is MTD compatible or collate VAT information digitally to share with your accountant.
If you're using paper-based records, or non-MTD returns due to having older or desktop-based software, then now is a great time to upgrade in advance of the new regulations in less than three months.
Submission, due dates and payment deadlines are unchanged.
Most companies file VAT returns quarterly, with the return and remittance due on the 7th day of the second month after the period end date.
Therefore, if your quarter ends on 31st March, you have until 7th May to file your return, which will need to be through a compatible accountancy system.
Upgrading Accounting Software Ahead of MTD
You can find a more extensive list on the HMRC site, which details all of the records you must retain in a digital format, such as:
- VAT paid on incoming goods and services.
- Collected VAT paid by customers.
- Dates of supply of each VATable transaction.
- VAT rates charged per invoice or sale.
- Total sales and the cumulative VAT.
- Adjustments made to your return.
If you don't have an accountancy programme and record your sales and expenses via spreadsheets, you can link these with HMRC.
You will still need bridging software, so it's often more advisable to opt for a fully-functional bookkeeping system.
Registering for MTD VAT
Once you have MTD-compatible processes in place, you must register with HMRC to submit your returns electronically.
If you have a Government Gateway account for your business, it's just a case of adding VAT to your accessible functions.
Where you don't use the online system, you'll need to create an account with:
- A business email contact.
- Your Government Gateway login details (or a new login if needed).
- The VAT number and your latest VAT return.
- Company registration and UTR numbers for limited companies.
- Your National Insurance number for sole traders.
Note that you must register at least a week before your return due date to give sufficient time for your login to be updated and ready to receive your first MTD VAT submission.
Choosing an MTD Compliant Accounting Software
SAS Accounting provides a range of Xero Tips to explain how this accounting software works, as one of the options to select a bookkeeping programme that endeavours to make MTD easy.
Xero has inclusive, bridging software to upload VAT transactions recorded on a spreadsheet and then convert the information into an MTD return ready to send to HMRC.
This feature means you won't need to enter details for transactions in the last VAT period manually and can then record your input and output VAT digitally going forward.
Another service worth mentioning is Help to Grow, an online government-backed programme that supports small businesses. The digital course is opening for applicants this month and includes a 50% contribution towards new business software, up to £5,000.
We hope this summary is useful, and provides clarity about when the new MTD rules take effect, and what you need to do to be compliant.
Please get in touch with the SAS team for any assistance with MTD compliance, road testing your software, or transitioning to digital VAT returns.