In the past, only businesses whose VAT taxable turnover was below or exceeded the registration threshold were obligated to sign up for Making Tax Digital (MTD).
From 01 April 2022, all VAT-registered businesses must comply regardless of their size as the UK government extends the Making Tax Digital programme.
Businesses have to keep VAT business records digitally and submit VAT returns via compliant software.
Failure to do so could result in fines of up to £400 – yet one in 10 businesses has yet to register for the service.
In light of these details, it’s essential to prepare your business for MTD VAT filing.
Follow these simple tips to get to grips with what’s required.
Check When the Deadline is Due
There are 3 upcoming deadlines that businesses need to be aware of, which are related to the following:
- Adhering to the rules. It’s imperative to start maintaining electronic records from the first full VAT period that starts after 01 April 2022. Simply put, you need to send summary data to HMRC about your business each quarter that includes information such as total income and income expenditure. You will still have to provide a final report each year.
- Signing up. It’s recommended to sign up for Making Tax Digital at least 7 days before your first return is due or 5 days after your first return is due. It’s imperative to have compatible software before you register. To do so, you will need an email address that includes your business’s domain name, a Government Gateway user ID and password, your VAT registration number and your latest VAT return.
- Submitting your first return. You have to make your first MDT-compatible VAT submission one month and 7 days after the VAT quarter. If your VAT period is in March, April or May, your first return will be for the next period – June, July or August respectively. Once you’ve made your first Making Tax Digital submission, the process is largely the same.
As the deadlines draw nearer, you and your accountant will get increasingly busy.
That being said, you should…
Talk to Your Accountant
Your accountant knows your business better than you, so they’re able to advise you about what’s best for it.
They will work with you to prepare for Making Tax Digital as they understand what’s required to maintain business records digitally.
As a result, you can minimise losses, manage cash and, most importantly, meet legal, regulatory and tax authority requirements.
If you want your accountant to deal with HMRC on your behalf, authorise them to do so.
They can either use HMRC’s online services or complete the form 64-8.
Determine What Accounting Software is Right for You
Making Tax Digital brings about fundamental changes to the way the tax system works. It involves a shift from spreadsheets to compatible accounting software.
This solution can take various forms, depending on your needs.
Some use bridging software with their existing spreadsheets, while others continue to use the existing software, but add in an MTD for VAT submissions module.
Invest in the right tax technology to support your business through these times of transformation.
Your software provider has to be MTD-compliant, meaning that the software should allow you to streamline digital records and make it easy to submit your VAT return via Making Tax Digital.
Here are other factors to take into account when selecting an MTD for VAT software vendor:
- Speed of implementation. Deadlines are just around the corner, so accounting software implementation should be fast and clean. If your business has unique processes in place, your software vendor should have the necessary expertise to make sure that everything runs smoothly.
- User experience. UX transforms can make accounting much easier. The tax technology is there to simplify your role and meet legislative requirements. Many still work remotely, so using the accounting software shouldn’t be any different than when you’re in the office.
- Additional features. Look at the features that can help you with general business management. QuickBooks, for instance, offers a wide array of features to help you glean invoicing, payroll, time tracking, expenses and cash flow insights
Educate Your Team About the Requirements for Making Tax Digital
Making Tax Digital affects all accounting processes, along with the staff involved in those processes.
This is why you have to make sure that everyone in the organisation, whether employees or managers, is ready for digitisation.
Alert and educate staff about MTD for VAT and be aware that it’s highly likely that it will be a significant learning curve.
Even if you don’t have all the answers, people will be looking to you for guidance so it’s a good idea to deliver training.
This way, the people in the organisation will be prepared for the many changes that need to be made.
Subscribe to HMRC Updates
Keep up to date with HMRC’s updates as they’re released and factor them into your planning – you don’t want to miss any important announcements!
There are many blogs that can be subscribed to, such as this one, that share the latest news and developments.
They’re packed with helpful information and you can set email reminders of the latest posts.
Equally, you can keep up to date through social media. Tiny changes can be important, especially if they influence your business.
To sum up, if you follow the above steps, you’ll be alright. And remember – even if you don’t run a business, Making Tax Digital could still affect you.
For example, if you rent a property or do freelance work, the MTD rules apply to you. Register for MTD for VAT today and save yourself a headache in the long run.