Tax Tuesday would like to ensure all our clients and contacts are ready for Making Tax Digital (MTD) for VAT.
As of 1 April 2021, UK VAT-registered businesses whose taxable turnover is above the threshold (£85,000), or who have chosen to voluntarily register, are required by MTD to keep digital records and to use compatible software to submit their VAT returns.
From 1 April 2022, MTD will be extended to apply to all UK VAT registered businesses, regardless of turnover. So, if you are not already registered for MTD, it is worth speaking to your accountant to ensure you are prepared for this switch!
What you need to do
The good news is that the government have given a respectable notice period to those businesses who currently sit underneath the VAT threshold.
There is potential bad news, however: if you are already signed up to MTD, you need to ensure that you are fully compliant from the first VAT return after 1 April 2021 (likely the next VAT return you will be completing!).
Establishing digital links between your systems is essential to keep your business MTD compliant. If you are not compliant HMRC can impose penalties – so if you are unsure, speak to your accountant or VAT advisor who should be able to advise, review your processes and recommend changes or third-party apps that can help.
How it works
If your digital records are up to date, the correct software will be able to collate and prepare your returns for you. The software should then show you each return and ask you to declare that it is correct, and confirm that you want to submit it to HMRC. Once you have submitted your return you will receive confirmation that it has been received.
Essentially, you need to ensure all sales and purchase information is properly processed which will enable the software to create an accurate VAT return for submission to HMRC.
Picking the right software is therefore essential, so do your research (we can help!) and ensure you are fully informed before choosing. This will save you time in the long run and make the process easier overall. Check out our FinTech Friday blog that offers an overview of what cloud accounting software can offer.
MTD – The Future!
On a final note, in addition to the MTD VAT requirements, the Government has announced that, with effect from April 2023, businesses and landlords with business income over £10,000 per annum and which are liable for Income Tax, need to keep digital records and use software to update HMRC quarterly through MTD.
MTD for Corporation Tax will not be mandatory until at least April 2026.
Tax Tuesday will of course, provide further updates as they become available.
How can we help?
We have already moved many of our clients to one of our recommended MTD-compliant cloud-based software packages. However, many clients choose to handle their own VAT. Below is a start list of things to check to help ensure MTD compliance:
- Get the right MTD compatible accounting software
- Review the gov.uk website and sign up for MTD if you are already eligible, or ready to voluntarily sign up
- Ensure digital links through third party apps (speak to your accountant to check these are compliant)
- Submit your VAT returns through relevant cloud-based accounting software.
If you have any questions about Making Tax Digital, please do not hesitate to get in touch with your relationship principal. For more information visit our website Digital Advisory pages here.