Making Tax Digital for VAT – April 2022
Amelia Atkins, IT & Applications Manager

Making Tax Digital (MTD) first came into force in April 2019 and is being extended to include all businesses that are VAT registered from April 2022. Previously, only VAT registered businesses with turnover greater than £85,000 had to comply with the Making Tax Digital for VAT rules.

According to HMRC, there is a growing body of evidence, from research and insights from taxpayers within Making Tax Digital for VAT, which demonstrates that MTD is securing a range of benefits for those that use it in practice:

  • Reducing or eliminating paper-based or manual processes through the use of software and an integrated approach saving time and allowing for greater accuracy in tax returns
  • Time spent on administration is reduced allowing for more time to maximise business opportunities, productivity and profitability

Under MTD, businesses must keep digital records and use third-party software to submit their tax returns to HMRC. Under the changes, those who do not already keep their records digitally will need to start doing so for their VAT obligations. The process of then sending returns to HMRC will become more straightforward, with returns generated and sent directly from the software used to keep records.

This will affect around 1.1m UK businesses that are registered for VAT with taxable turnover below the current threshold of £85,000. If these changes are going to affect your business and you haven’t yet thought about how to ensure you are compliant, the follow information should help.

Will my business be impacted?

If your business is currently VAT registered, then using Making Tax Digital for VAT will be a requirement for your business as of April 2022. You will need to follow the MTD for VAT rules for the first full VAT period that falls after 1 April 2022 and then all subsequent ones.

It is important to ensure that you are keeping digital records for VAT and if you are using more than one piece of software then they must be digitally linked.

Exemptions and deferrals

If you are a business that is considered digitally exempt then you may be able to claim exemption from MTD for VAT. Those that are digitally exempt include people with religious beliefs that are not compatible with the requirements, or people whose age, disability or remoteness means it is not reasonably practical for them to use digital tools.

Is my current software compatible?

You will need to use software that is compatible with HMRC’s Making Tax Digital for VAT regime. If you are unsure about what software is compatible for Making Tax Digital you can check here. You must also ensure that your software can communicate electronically with HMRC’s portal, so you that you can file your VAT returns electronically.

Desktop Software

If you are using desktop accounting software you may need to update it for MTD if your software provider has offered a solution for MTD filings. If you have very old software, it may not have been updated for MTD so you will need to consider alternative solutions to have in place ahead of the deadline of April 2022.

There are many added benefits to moving to a cloud accounting package:

  • Data about your sales or income and purchases can flow straight from your bank to your books so you don’t spend hours transcribing them
  • You can see your current financial position at any time
  • Multi-user access makes it easy to collaborate online with your team and advisors
  • It’s online software so there’s nothing to install or update, and all your data is backed up automatically
  • You can set up a dashboard showing important financial information like who owes you money, what bills are due and how your cash flow is looking

Are you comfortable using your current software?

If you feel that you require more training on your cloud accounting package then it is worth thinking about booking your training soon, get in touch with us and we can discuss the options available. Remember that the deadline is April 2022!

How do I register for MTD?

1. Before you start – you must have compatible software before you sign up.

2. What you need – to sign up you need:

  • Your business email address
  • A Government Gateway user ID and password – if you do not have a user ID, you can create one when you use the service
  • Your VAT registration number and latest VAT return

You’ll also need:

  • Your National Insurance number if you’re a sole trader
  • Your company registration number and Unique Taxpayer Reference if you’re a limited company or registered society
  • Your Unique Taxpayer Reference (UTR) and the postcode where you’re registered for Self-Assessment if you’re a general partnership
  • Your Unique Taxpayer Reference (UTR), the postcode where you’re registered for Self-Assessment and your company’s registration number if you’re a limited partnership

3. When to sign up

If you already pay by Direct Debit do not sign up too close to the date your return is due, or you may pay twice.

To avoid this, do not sign up less than:

  • 7 days before your return is due
  • 5 days after your return is due

If you do not pay by Direct Debit, sign up at least 3 days before your return is due.

Making Tax Digital for VAT is a separate roll-out programme to MTD for Income Tax, which has been postponed and is now due to start in April 2024.

Next steps

If you’d like any more details about the transition to Making Tax Digital for VAT for your business, then please do get in touch and our team will be happy to help you.

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