SAGE GROUP PLC As of April 2022, a new cohort of businesses will need to start following the Making Tax Digital (MTD) for VAT rules.
Although the work required for accountants will be much lower than the April 2019 introduction, most practices will see their workload temporarily spike as 2022 gets underway.
Therefore, it's vital to start early and as soon as possible to help your clients get to grips with what's required.
Here are some tips, as well as a more general backgrounder on MTD and digital accounting.
Here's what we cover:
Which clients does Making Tax Digital for VAT apply for?
How to encourage clients to move to digital ways of working
7 tips to get clients ready for Making Tax Digital for VAT
1. Educate your clients about the requirements of Making Tax Digital
2. Help clients switch to digital record keeping
3. Provide calendars and deadlines for clients
4. Help clients choose software for Making Tax Digital
5. Clear up misconceptions about MTD for VAT
6. Help clients create end-to-end MTD for VAT workflows
7. Help your clients help each other
Final thoughts on Making Tax Digital for VAT
From April 2022, all VAT-registered businesses have to follow the Making Tax Digital for VAT rules.
This includes hundreds of thousands of businesses that have a turnover under the £85,000 threshold but have voluntarily registered for VAT.
A number of businesses in this category have already adopted MTD for VAT.
But HMRC says there are around 700,000 others across the UK that will need to do so in time for their first full VAT period that occurs after April 2022.
How to encourage clients to move to digital ways of workingThere can be no doubt that one of the key reasons for Making Tax Digital existing is to encourage businesses to adopt digital ways of working.
To resist this is not only to risk breaking the law but it also puts the business at a competitive disadvantage.
When attempting to comply with MTD's rules, businesses that cling to old ways of working and rely largely on paper have to put in more effort than those that don't.
But you can help your clients by communicating this to them, while emphasising the benefits.
Using good-quality, HMRC-recognised accounting software means business admin tasks can be reduced from days to just hours.
It means businesses always know their cash flow position, so they can make superior decisions (and spot any problems arising before they become out of control).
And of course, creating a VAT Return if the accounting data is already within the software is just a matter of clicking a few options, then perhaps applying adjustments, and clicking to submit the return.
It's this very positive and perhaps even inspiring message that can often be buried underneath what seems to businesses to be yet another mandatory requirement from the government.
And it's not just clients that benefit.
Making Tax Digital means that you, as an accountant, are in a better position to assist your clients, and therefore be of better service to them.
Ultimately, MTD shows no signs of stopping and therefore needs to be sold by you as a lifelong commitment for the client's business.
In April 2024, many sole traders will have to use MTD for their income tax, while by April 2026 (at the earliest) incorporated businesses will have to use MTD for their corporation tax returns.
It's time to start your clients on the journey today by helping them use software that's MTD-ready and that will support all future MTD compliance requirements.
7 tips to get clients ready for Making Tax Digital for VATHere are seven ways you can help clients of all kinds get ready for Making Tax Digital for VAT ahead of the April 2022 (and beyond).
1. Educate your clients about the requirements of Making Tax DigitalHMRC is reaching out to those affected via email and letters, but it's once again relying on accountants to educate about the specifics of MTD for VAT.
This perhaps makes sense, because it's only accountants that intimately understand their clients' situations, and what might need to be done.
How do you educate about Making Tax Digital?
Here's three easy and simple suggestions:
- Tack on information to the end of existing conversations, such as during Self Assessment preparation time in January. Use every client touchpoint as an excuse to educate, and ensure all members of your staff have the knowledge to do so. Some practices have even added the MTD messaging to their email signatures, to ensure it's always included in communications. Updating your website and social accounts is a wise move.
- Email blasts are worth trying too. In fact, treating this just like a marketing campaign will pay dividends because you should be selling new or different service offerings that fit with MTD's requirements and what your clients need. In other words, treat this as an opportunity to sell increased awareness of what you offer.
- Webinars are a very effective way of reaching many people for a minimal time and monetary outlay. If you run the webinar as a Q&A session then the initial prep requirement is reduced too. Worried about being stumped by a difficult question? Just make it clear at the beginning that you may have to get back to people with an answer after the webinar. As for what technology to use for the webinar, video conferencing tools such as Zoom and Microsoft Teams are essentially free, easy to use, and widely adopted.
This is the one that might catch out many clients who ask you to take care of their VAT Returns for them.
They might think they can simply forget about Making Tax Digital for VAT, and carry on as they always have.
But they've still got to maintain VAT accounting records digitally, and know about the digital linking rules (no copy/cutting and pasting of key VAT data from one destination to another).
This might seem like an education issue. But it's more than that.
You may need to help your clients switch to and adopt a digital solution that's right for their needs.
At its most basic, this could be just a spreadsheet, although the MTD for VAT rules mean it will need to include more details than just input and output VAT amounts (for example, invoice-level details such as tax point dates, VAT rates, and so on).
But if the client uses accounting software that connects to your systems, which in turn makes producing VAT Returns much easier, it's a win-win situation for both you and them.
3. Provide calendars and deadlines for clientsWhen clients first hear that Making Tax Digital is going to affect them, you can expect four W questions in rapid succession: Why, when, who, and what.
The 'when' question is likely to be one of the most pressing that clients will ask of you because they'll be afraid of getting penalised.
You can answer it very easily by providing deadlines for the client that they must meet. This will include registration deadlines, start days, and first filing dates, as follows:
When do clients sign up for MTD for VAT?Clients shouldn't sign up less than:
- Seven days before their return is due; or
- Five days after their return is due.
For clients who file quarterly VAT Returns, these are the likely start dates:
- 1 April 2022: If the previous VAT quarter ended 31 March 2022.
- 1 May 2022: If the previous VAT quarter ended 30 April 2022.
- 1 June 2022: If the previous VAT quarter ended 31 May 2022.
Again assuming quarterly returns, the initial VAT Returns for MTD for VAT must be filed by the following:
- 7 September 2022 for a VAT quarter beginning 1 April 2022.
- 7 October 2022 for a VAT quarter beginning 1 May 2022.
- 7 November 2022 for a VAT quarter beginning 1 June 2022.
Before clients can register for Making Tax Digital for VAT, they'll need to know which MTD-recognised accounting software they're going to use. HMRC simply won't let them proceed unless this is known.
The software can take different forms, depending on the client's needs, and you should be prepared to help with solutions.
Some may choose to use bridging software with their existing spreadsheets.
Others may choose to use their existing software but add in an MTD for VAT submissions module.
Then there are those who may find their software is already MTD-recognised and they simply need to register for MTD, and then authenticate within the software.
But you should ensure clients realise that. Just because the software is MTD-recognised, it doesn't mean they are.
Helping clients with software is one of the immediate messages to communicate, because some may need to switch accounting packages if the one they use can't be updated.
This switch is obviously a big job, and considering many other businesses may find themselves doing the same before April 2022, getting it completed for your client as soon as possible puts them in a stronger position to be 100% ready for MTD for VAT when it arrives.
After all, HMRC and software vendors are likely to take an enormous number of queries on their support helplines as April 2022 approaches.
Requests for help within your own practice are likely to be higher than usual, too.
Try to help avoid your clients being caught in the rush.
While there's a need to educate clients about Making Tax Digital for VAT, there's also a need to respond to myths, misinformation and incorrect assumptions.
For example, clients may assume there's another soft landing period this time around for MTD for VAT.
As of April 2019, this provided additional time for businesses to be less strict when interpreting the digital linking rules, meaning they could continue to copy and paste from one place to another.
However, there's no soft landing period as of April 2022 for those switching to MTD for VAT, nor has HMRC said it will be taking a gentler view of those that get things wrong when they start following the new rules.
There's a new penalty points system to consider, too.
By far the biggest misconception will be that MTD doesn't apply to your voluntary VAT-registered clients.
This was the message that went out back in April 2019, and it will be tough to erase, with clients perhaps feeling resentment because of an incorrect assumption that they were forever exempt.
There might also be misconceptions that businesses can opt-out of MTD for VAT, with clients perhaps having heard about digital exclusion.
But this is limited to exceptional individual circumstances, such as where somebody lives in a location without internet access, or for people who can't use technology because of physical or mental impairments.
6. Help clients create end-to-end MTD for VAT workflowsThere's little point in simply educating clients about Making Tax Digital for VAT and then leaving them to it.
You may need to help them translate all their existing processes into ones that are compatible with MTD for VAT.
For example, if invoices are created outside the accounting software, the details will need to be entered into the system in order to be compliant with the digital records requirement.
This needs to be something that always happens for each and every invoice, otherwise there's a risk of penalties from HMRC.
Key to helping clients create MTD-compatible workflows is identifying the points at which accounting data is generated or manipulated.
Typically, this will be at the point at which sales and purchases are made.
An even simpler way to express this to clients is to ask them to identify when paperwork is generated for VAT purposes, because it's that VAT data that will need to be captured (such as tax point, VAT rate, VAT number and so on).
For example, it's when they receive receipts, bills, and invoices that they'll need to be aware of MTD for VAT's requirements.
7. Help your clients help each otherHaving gained experience from the 2019 rollout of Making Tax Digital for VAT, you should already be segmenting clients into lists that will determine how and when you help them.
You might segment out those that need help first (such as monthly VAT filers), or those that are more technically savvy and will perhaps need less help overall.
And it's likely that some of your clients will embrace MTD for VAT more wholeheartedly than others, who may consider it a difficult and painful process.
So why not leverage the clients that can in order to help the clients that can't?
There's a number of ways you can do this, such as via client get-togethers (in person or online).
Some practices even run their own private online chat forums on their websites, where clients can gather to speak to each other.
Final thoughts on Making Tax Digital for VATGetting clients ready for Making Tax Digital for VAT might feel like a duty for accountancy practices, but it's actually a way to increase exposure for what you do.
Savvy practices are using it as an opportunity to create new service offerings that are more aligned with not only MTD for VAT, but also the way the business world operates nowadays.
Why not do the same?
But at the end of the day, helping clients learn what they need to know about earthquake changes can be a rewarding experience in itself, and can help increase client confidence and satisfaction in what you do for them.
Need support with Making Tax Digital, for your clients and your practice? This free guide will help you get ready for MTD for VAT, Income Tax Self Assessment and Corporation Tax.
- Accountant tax
- Making Tax Digital for accountants
- Tax
- VAT
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Sage Group plc published this content on 18 January 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 18 January 2022 16:29:05 UTC.
