SAGE GROUP PLC Things are changing once when it comes to VAT.
As of April 2022, all those who are registered for VAT must start to follow the Making Tax Digital (MTD) for VAT rules.
This includes those who have voluntarily registered for VAT, and who were left out in the initial April 2019 launch of Making Tax Digital for VAT.
Needless to say, for those impacted this time around, some adaptation is required. They must ensure they're legally compliant or risk penalties.
Keeping VAT records digitally, using software to submit VAT Returns…
There's a lot to do ahead of the first VAT period that begins after 1 April 2022.
Here are some tips to help you get ready.
But first, let's start with a look at detail around the actual MTD for VAT requirements.
Here's what we cover:
Does Making Tax Digital for VAT apply to me?
Why Making Tax Digital for VAT will make life easier for your business
6 tips to get your business ready for Making Tax Digital for VAT
Final thoughts on Making Tax Digital for VAT
If you're registered for VAT then, yes, Making Tax Digital for VAT will apply to you as of April 2022.
Previously, it was only mandatory for businesses above the VAT threshold (currently £85,000).
But this changes on 1 April.
For all those businesses that are already using MTD for VAT-including those that are voluntarily registered for VAT-nothing changes as of this date.
However, those that are not yet following the MTD for VAT rules will need to start doing so for their first full VAT period that begins on or after 1 April 2022.
This means storing key VAT records digitally.
When it comes time to submit the VAT Return, this must be done using functional compatible software.
Most people use cloud accounting software to take care of both these two requirements.
But you'll need to register for Making Tax Digital for VAT before submitting your first return, and ensure the MTD feature is activated in your software by signing in with your MTD account details that HMRC provides.
Why Making Tax Digital for VAT will make life easier for your businessIt's easy to see MTD for VAT as yet another administrative obligation.
But it can be transformative to business accounting because it puts in place the requirements for better money management.
By keeping your accounting records digitally, you're more likely to have all the information you need in one place.
This makes it easier to get a view not just of how much VAT you owe, but also of your cash flow, how much you're owed, how much you've spent, and so on.
Most people use accounting software to be compliant with MTD for VAT.
In that case, somebody else has thought through all the details for you. Provided the data you input is accurate and complete, which it's easy to do, creating a VAT Return can be done with just a few clicks or taps of the screen.
You haven't got to worry about keeping records digitally for the required six years because the software does it for you in the background.
And modern cloud accounting software comes with all kinds of other useful features, outside of VAT accounting, such as automation,
This makes it significantly quicker to reconcile your books each month against your bank account. This frees up significant amounts of time to do more of what you love.
In fact, using accounting software makes VAT accounting so easy that to continue using something like a spreadsheet is to slow yourself down and reduce the chance of spending more time working on what you love to do.
Discover how Sage Accounting can help you get your MTD for VAT submission right, calculate your bill and submit your VAT Return with ease.
Here's six easy tips that should help you prepare for MTD for VAT, so you're compliant-and can stop worrying about it.
1. Learn what deadlines apply to youThere are essentially three deadlines you need to meet when it comes to MTD for VAT:
- Signing up to MTD for VAT.
- When you must start following the digital record-keeping rules-even if you haven't yet signed up to MTD for VAT.
- Filing your first MTD for VAT return.
Let's look at these in chronological order.
Deadline 1The first deadline to consider is when you must start following the digital record-keeping rules.
This will be significantly before you need to sign up for MTD for VAT, and before you submit your first MTD VAT Return.
You must follow the digital record keeping requirements for the first full VAT period that starts after 1 April 2022.
In other words, if a VAT period ends 31 March 2022 then you'll need to follow the requirements from 1 April 2022 onwards.
If your VAT period runs across the 1 April 2022 date and ends on 30 April (as an example), you'd need to follow the rules from 1 May onwards.
Deadline 2The second deadline is when you must sign up to MTD for VAT.
To avoid overlap with the existing VAT system, there's a relatively narrow window in which you must sign up, as follows:
- Seven days before your first MTD for VAT return is due, or
- Five days after your first MTD for VAT return is due.
If you file your VAT Returns quarterly, working out the deadline for your first MTD for VAT return is easy, because the existing rules haven't changed.
You must submit it at most one month and seven days after the end of the VAT quarter.
Therefore, for a VAT period beginning 1 March, you need to file the return by 7 October 2022.
If you try to register for MTD for VAT, one of the first questions asked is which Making Tax Digital-ready software you'll be using in order to be compliant.
If you haven't made your choice ahead of this, you won't be able to proceed with your registration until you know.
You might find your existing accounting software is already MTD-ready, in which case it'll be simply a matter of signing in with your MTD for VAT account details after you've signed up.
Speak to your software vendor if in any doubt.
3. Speak to your accountantThere's one person you're likely to know who's an expert on all things Making Tax Digital: your accountant.
They've already been through MTD for VAT preparations and onboarding back in April 2019, so they've learned a lot of lessons since then.
They're likely to be able to tell you the very best way to make MTD for VAT work for you, with particular regard to your unique financial circumstances.
So, why not drop them a line?
Even if you prepare your own VAT Returns, they're likely to be happy to share information and guidance.
They may have advice on how you can link in your accounting system with theirs, for example, to make life easier for both of you.
4. Educate staff and colleaguesMaking Tax Digital for VAT affects all your accounting processes, so it's important that all the touchpoints when it comes to purchasing and sales know about its requirements.
Remember that MTD for VAT doesn't change any existing VAT rules.
It just aims to digitalise the accounting side of things. Therefore, it's about changes to processes, rather than to how VAT is applied (e.g. which rate is applied, and when).
Colleagues in your sales department may need to know about it and change their processes when it comes to issuing invoices, for example.
The details of MTD for VAT can be found in VAT Notice 700/22.
While this is a quite technical document, it's also surprisingly readable and you can use your browser's search feature to find key terms.
HMRC provides several examples of how things work that can be enormously useful.
Suggesting key senior staff read the document and perhaps prepare a short report on how MTD for VAT is likely to apply to their work and processes is worth considering.
5. Consider other Making Tax Digital schemesMTD for VAT is the first of what may prove to be many Making Tax Digital schemes.
We already know Making Tax Digital for Income Tax is arriving in April 2024, when it will apply to sole traders and landlords with income over £10,000 per year.
In 2025, it will apply to general partnerships, with the same £10,000+ earning criteria.
It's unclear if MTD for Income Tax will subsequently be applied to individuals or businesses outside of this.
But considering that MTD for VAT was limited to those over the VAT threshold back in 2019, and is now being rolled out to all VAT businesses, we might expect many more people in future to have to follow the MTD for Income Tax requirements.
Then, no sooner than April 2026, Making Tax Digital for Corporation Tax is due to arrive.
Therefore, when adjusting your accounting processes to become compliant with MTD for VAT, it might make sense to include MTD for Income Tax or Corporation Tax in your thinking.
For example, if you currently use spreadsheets for your accounting and are upgrading to accounting software, then speak to the vendor about the 2024 MTD for Income Tax deadline.
And ask if the software is truly MTD ready.
6. Check if your business is digitally excludedIt's not entirely accurate to say that every business that's VAT registered must follow the MTD for VAT rules.
Some people are considered by HMRC to be digitally excluded. This means they don't have to follow the MTD for VAT rules.
Such people are identified by their inability to either use computers or go online.
This might be because of a physical disability, but it can also be because of issues such as religious prohibitions. It might be simply because the individual lives in a remote location where there's no internet connection.
Unfortunately, you need to convince HMRC that you (and your business) should be considered digitally excluded.
This involves calling their helpline and speaking to their customer support team to make your case.
It's only after you've specifically been granted digital exclusion that you can revert to your existing methods of preparing VAT Returns and storing VAT records.
One thing is certain, though-you can't simply opt-out of MTD for VAT.
Final thoughts on Making Tax Digital for VATMTD for VAT's final roll-out presents challenges to businesses, but it can be transformational when it comes to understanding not just what tax you owe but also your business finances.
Smart businesses should use Making Tax Digital for VAT as a prompt to modernise their processes to create a business ready for the coming decade.
Editor's note: This article was first published in February 2022 and has been updated for relevance.
- Bookkeeping
- Making Tax Digital for businesses
- Need to know
- Tax
- VAT
Attachments
- Original Link
- Original Document
- Permalink
Disclaimer
Sage Group plc published this content on 08 March 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 15 March 2022 14:41:08 UTC.
