Blog

Making Tax Digital for VAT is here – are you ready?

You could be forgiven for a little confusion around the start date of Making Tax Digital for VAT as it has been postponed on a few occasions, most recently because of the COVID pandemic. However, it’s not been hard to miss the fact that ALL VAT-registered businesses (whether above or below the £85,000 threshold) are required to submit their VAT returns digitally from 1 April 2022.

This date will not shift, it’s nearly here and it’s really happening! So, do you currently store your VAT records digitally, using an HMRC approved ‘functional compatible software’? If not, what has your accountant been doing?! Need help – read on, we can assist.

MTD – the basics

The theory is that Making Tax Digital (MTD) will make the tax system more resilient and effective, supporting taxpayers and boosting productivity. MTD will affect around a million businesses in the UK that are VAT registered although they are below the £85,000 threshold. However, if your business already uses a cloud accounting software, registering with HMRC for MTD could be as simple as initiating your software MTD feature.

If your business is registered for VAT, MTD is compulsory for the first full VAT period beginning on or after 1 April 2022 and for all following VAT periods. Make sure that all the pieces of software you use are digitally linked and are compatible with the MTD portal. If you’re still using spreadsheets and manual records to prepare your VAT return, your systems will need to be updated onto compatible software now.

Is my software compatible?

If you already use digital accounting software, you can check if it’s compatible with the MTD system at this Government website. Some older accounting software may not work with the MTD portal and will need to be updated or replaced.

What records must I keep digitally?

HMRC state that you must record the following:

  • Business name, address and VAT registration number
  • VAT accounting schemes
  • VAT on goods and services you supply and goods and services you receive
  • Adjustments made to the return
  • ‘Time of supply’ and ‘value of supply’ for all items bought and sold
  • VAT rate charged on goods and services you supply
  • Reverse charge transactions
  • Total daily gross takings (for Retail Schemes)
  • Reclaimed VAT on items used (Flat Rate Scheme)
  • Total sales with VAT for trading in gold (Gold Accounting Scheme)
  • Digital copies of documents for multiple transactions made on your behalf by volunteers for charity fundraising, a third party business and employees for expenses in petty cash.

Who is exempt from MTD for VAT?

Some businesses are ‘digitally exempt’ through reasons of religion, disability, age or remoteness of location. HMRC recognises that a minority of people have a genuine reason for not using digital software and will also consider other cases.

What about MTD for the non-VAT registered?

The Chancellor added an extension to MTD for Income Tax Self Assessment (ITSA) until April 2024 for the self-employed and those with income from property. The turnover threshold for MTD ITSA is £10,000. MTD for most partnerships will come into force in April 2025 and MTD Corporation Tax is planned to begin in April 2026 at the earliest.

If you have not yet registered with HMRC for MTD for VAT, it would be wise to do so asap to get familiar with the systems and iron out any issues. If you need help to make sure your systems are compatible and doing the best job for your business, get in touch with CRM Oxford on 01865 379272.

Pin It on Pinterest