Making Tax Digital (MTD) is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs.
From 1 April 2022, the MTD for VAT initiative is being expanded to cover all UK VAT registered businesses and organisations.
At present, the MTD rules only apply to those businesses with a UK taxable turnover above the VAT registration threshold of £85,000, as voluntarily registered businesses have the option to sign up to MTD. However, from April 2022, MTD for VAT is no longer optional, and will become mandatory for all UK VAT registered businesses.
I am voluntarily registered for VAT, what does this mean?
- You will be required to sign up to MTD for VAT if you are not already submitting MTD VAT returns to HMRC. As part of the sign-up process, you will be required to create a new direct debit for VAT payments. If you would prefer us to sign you up, let your key contact know.
- You will be required to keep digital business records for the first VAT period commencing on or after 1 April 2022, and all VAT periods thereafter.
- You will be required to use MTD compatible software to submit your VAT returns to HMRC for the periods commencing on or after 1 April 2022.
- If more than one software package or spreadsheet is used, they must be digitally linked.
What are my options for digital record keeping?
Cloud accounting software
Using cloud accounting software will ensure that you are MTD compliant. Instead of saving your accounting information on your desktop computer, cloud accounting software stores your information on remote servers in ‘the cloud’.
Cloud software is incredibly flexible – it gives you access to real-time information about your business finances anytime, anywhere – providing you have internet access.
If you are currently using spreadsheets, you can either upgrade to software that supports MTD for VAT or continue to use spreadsheets in combination with bridging software.
Since spreadsheets are capable of recording and storing digital records, they can still be a component of the MTD compatible software.
Bridging software is a digital tool which is used to connect accounting software, including spreadsheets, to HMRC, meaning the required information can be reported digitally.
Bridging software can be used if you want to continue using spreadsheets, bespoke accounting software which is not MTD compliant or where partial exemption calculations are involved.
Is my existing accounting software compliant for MTD?
This will depend upon which accounting software you are currently using. Common cloud accounting software packages, such as Xero, Sage Business Cloud Accounting, QuickBooks Online and FreeAgent are all MTD compliant. Sage 50 is also MTD compliant as long as you are using the latest version.
If you are currently using a bespoke software package, you should contact your software provider to discuss your options.
Why should I switch to MTD for VAT now?
We recommend that businesses affected register for MTD for VAT now, before you are legally required to make the switch.
There are many benefits to registering early, as it will give you an opportunity to get used to new compatible software and digital links, allowing you to iron out any issues in plenty of time.
How we can help
Please get in touch with your usual contact or contact our MTD Advisory Team at email@example.com if you would like further information on the expansion of MTD and the different options available to you.