Making Tax Digital: VAT Returns and Software Guide
Making sure your business is compliant
As it will be compulsory for all VAT registered businesses to file MTD returns from 2022, including those whose turnover is below the threshold, options concerning VAT and MTD registration should be considered sooner rather than later.
From 1 April 2019 most VAT registered businesses with a taxable turnover above the VAT threshold (currently £85,000) were required to keep digital VAT business records and submit VAT returns using Making Tax Digital compatible software.
Step 1 – Check if and when you have to register
VAT taxable turnover is the total value of everything you sell that is not exempt from VAT and should be assessed on a rolling 12 month basis. If your taxable turnover is above £ 85,000 then your joining date will depend on your usual VAT return submission periods, and you should register now so you are ready to submit your next return under MTD.
For periods beginning on or after 01st April 2021, VAT registered businesses with turnover exceeding £85,000 must comply with the Making Tax Digital rules. The 2 year “soft landing period” ends 31st March 2021.
This means business who are MTD registered (or if they meet the conditions, will be registered for MTD), must comply with the requirements of MTD. This includes using MTD compatible software, such as cloud accounting software or API enabled spreadsheets, to file their VAT returns. In addition, the data that constitutes the VAT return must meet the MTD conditions, which includes not cutting and pasting data into the VAT return or spreadsheets where formulas are not used to connect sets of data.
Crucially, from 01st April 2022 (next year), all VAT registered traders, regardless of turnover, will be required to file their VAT returns under Making Tax Digital. So for those businesses, the sooner you start to plan for April 2022, the less disruption this will cause the business. Depending upon your financial year, the business does not want to be changing accounting systems mid-year (although sometimes unavoidable). There are many different solutions on the market, choosing a solution can depend upon your business, its turnover, the number of transactions, etc. For example an online business may generate thousands of small value transactions whereas a traditional retail store may have multiple payment methods (cash, card) and knowing which software solution works best for you is something we can help with.
Step 2 – Check you have the right software
Before you sign up you must have software that:
- Lets you submit VAT returns
- Is Compatible with Making Tax Digital for VAT
HMRC have a list of software suppliers including bridging software that are already compatible for MTD for VAT as well as those that are still in the development stage. Information can be found here or you can talk to a member of our team who are currently submitting using Quickbooks, Xero, Sage and other bridging software.
Step 3 – Sign up for Making Tax Digital for VAT
Businesses above the £85,000 threshold will not automatically be transferred to the new system and will be required to sign up to MTD for VAT in accordance with the dates detailed above.
It is important that you ensure you have compatible software in place before you sign up.
The sign up procedure can be accessed here.
HMRC will send you a confirmation email within 72 hours of signing up.
Step 4 – Authorise your software
Once you sign up you cannot use the current VAT online services to submit your VAT return and will need to follow your software providers guidance to ensure any authorisation and linking process is carried out within the software.
Please note, HMRC continue to work on their online resources and it may be that the hyperlinks above will become redundant if the website section on MTD is restructured.
How can we support you with your digital VAT returns?
Since 1 April 2019 businesses must have had MTD for VAT in place. Our Accounting Solutions team work with a number of compatible software solutions and have signed clients up for MTD for VAT. We are successfully submitting VAT returns under this regime. Please get in touch with any of our experts listed on the right of this page or simply fill out the form below and we will respond to you.