Most businesses with taxable turnover above the VAT-registration threshold have to comply with Making Tax Digital (MTD).
From 1 April 2022, that will expand to all VAT-registered businesses, regardless of their turnover over the previous 12 months. Are you ready?
What is MTD for VAT?
MTD is a key part of the UK’s long-term plan to digitise the UK tax system. It intends to make it easier for individuals and businesses to understand and fulfill their tax obligations.
Specifically, this evolution involves switching from traditional paperwork and offline software to digital solutions for record-keeping and submission purposes.
Individuals and businesses will essentially have a tax account on which all their financial information is stored.
You, HMRC and even us as your accountant will be able to view this in real time, making it easy to strategise your taxes and submit them to HMRC.
MTD software highlights possible errors and offers prompts for information that can easily be overlooked, reducing the risk of mistakes and, crucially for HMRC, boosting tax collection.
Most of the major cloud accounting platforms are already compatible with MTD, along with many other less well-known accounting apps. A full list can be found on HMRC’s website.
What other taxes will MTD affect?
From 1 April 2019, most VAT-registered firms have been keeping digital records and using MTD-compatible technology to file their VAT returns.
Businesses with turnover below the VAT-registration threshold could voluntarily join, but all VAT-registered firms must comply with MTD rules from 1 April 2022.
From 6 April 2024, MTD for income tax will be introduced for businesses and landlords with total income of £10,000 or more. This spells the end for self-assessment.
MTD for corporation tax is not due to start until 1 April 2026 at the earliest and is likely to be later.
Getting ready for MTD for VAT
If you run a VAT-registered business but haven’t yet joined MTD, now is the time to ensure you’re ready before April.
First, make sure you and your finance team have all the necessary resources and training to understand your new responsibilities.
The deadlines for sending VAT returns and making payments stay the same, as will your monthly, quarterly and annual VAT return deadlines.
There’s a lot to prepare for, so for a full understanding of what you need to do as part of MTD for VAT, make sure to read HMRC’s full guidance.
You also need to choose the best MTD-compatible software for your business.
For us, Xero is the logical choice for the majority of small and medium-sized businesses with VAT obligations. It has a large variety of apps that can enhance your experience with digital accounting.
Some might be more valuable than others, depending on your situation. A few of our favourites include:
- A2X – essential for ecommerce businesses, in our opinion
- ApprovalMax – offers a great way to ditch the paperwork
- Furtli – which acts as a perfect prediction tool.
Seeking professional help, especially seeing how close we are to the start date of the full version of MTD for VAT, is also important.
As fully digital accountants, we can help you understand any aspect of MTD and get you up to speed with cloud accounting software like Xero. We are taking a look at the latest on MTD for both VAT and ITSA at a free seminar on 4 May 2022, register here to join us.
Contact us 0n 020 7330 0000 for more information about MTD for VAT.