MTD for VAT: now’s the time to act
From 1 April 2022, Making Tax Digital (MTD) will be mandatory for all VAT-registered businesses, not just those over the turnover threshold (£85,000). That means that if you’re registered for VAT, you need to have the right systems in place now.
There are two key things you need to do:
- Put in place compatible accounting software; and
- Sign up to MTD on HMRC’s website
Find out in this blog exactly what you need to do and when.
Make sure you have compatible software
As of next month, you’ll no longer be able to submit VAT returns manually via HMRC’s website. You’ll have to use software instead. And that software must have the functional compatibility for submitting VAT returns. What makes the software “compatible” is whether it can communicate directly with HMRC’s systems to file your VAT returns.
Many businesses find it difficult to choose accounting software, which leads to them stalling over the process. We’re familiar with various programs and if you’d like a steer on which system will work for your requirements, we’re happy to discuss it with you.
Once you’ve picked a system, you’ll find that most cloud accounting programs are set up to deal with MTD easily. You’ll simply activate the “MTD for VAT” feature, and the software will take care of your returns.
If you’re using desktop software however, it may not update automatically for MTD VAT accounting. Upgrading to the latest version available gives you the best chance of activating an MTD feature.
However, if you’re unsure how to do it, your software vendor will be able to guide you through it. It’s a good idea to speak to them sooner rather than later to make sure you have all the functionality you need before the deadline.
Perhaps you use spreadsheets to keep track of your VAT accounting? You’ll still be able to comply with MTD for VAT if you do, but you’ll need to put in place bridging software.
But that would only be a short-term solution. You’re essentially adding another layer into the system and making it more complex with extra potential for error. You’ll save yourself time in the long-run by replacing spreadsheets with accounting software.
Signing up to MTD
Once you have your software in place, you’ll be able to sign up for MTD. You won’t be automatically enrolled, so you have to register yourself on the government’s website.
There’s some sensitivity over the timing for signing up, and be aware that if you get it wrong you could end up out of pocket. Getting the timing right depends on whether or not you pay your VAT returns by direct debit currently.
If you already pay by direct debit, you could end up paying twice if you sign up too close to the date on which your VAT return is due. To avoid double payment, sign up at least seven days before the due date of your VAT return, or at least five days after you’ve filed it.
If you don’t already pay by direct debit, just sign up at least three days before your VAT return is due.
We can help you get your business ready for MTD. Give us a call if you’d like any recommendations on accounting software, or help with how to use it.