All VAT registered businesses to file through Making Tax Digital from April 2022
Every small business (with just a few exceptions), that is registered for VAT, will be required to keep records digitally and file their VAT returns using software from April 2022.
HMRC has already notified VAT registered businesses that they need to file their tax returns digitally through Making Tax Digital (MTD), however, the April deadline is fast approaching, meaning that every small business not already MTD compliant should prepare now.
What are the latest MTD rules?
Since April 2019 UK VAT registered businesses with a turnover above the £85,000 VAT threshold have had to process their VAT returns through MTD.
From April 2022 all UK VAT registered businesses must file their VAT returns digitally through MTD, regardless of their turnover, using ‘functional compatible software’. Businesses can find information on how to sign up for MTD at gov.uk, or an agent (such as a tax adviser or accountant) can sign up on behalf of a business – but the business is responsible for meeting their VAT obligations. It is expected that the new rules will affect about 1.1 million businesses.
MTD – an overview
HMRC is aiming to become ‘one of the most digitally advanced tax administrations in the world’ by joining up their various tax reporting systems. This will mean that each taxpayer has only one HMRC account which will cover all their different taxes. Taxpayers will be able to see all their payments as well as offset any overpayments in one tax account against any underpayments in other accounts. There is a penalty system for late submissions and late payments. The MTD system requires taxpayers to file quarterly using software which is compatible with HMRC’s API (Application Programme Interface) to submit the information.
MTD for VAT – the software requirements
- Keep digital VAT records for your business using MTD-compatible software
- Use this software to calculate the VAT due to HMRC
- Submit the 9-box VAT return using HMRC’s dedicated software interface (API)
- Have digital links between the software you use to generate invoices, through to HMRC
- Create new authentication
- Be able to receive digital information back from HMRC
- Introduce controls around correcting errors and making adjustments
MTD for VAT – the information needed by HMRC
- Your business name and principal address
- Your VAT registration number
- Details of any VAT accounting schemes you use
- As per your current VAT records, for each sale entry:
- Time of supply (tax point)
- Value of supply (net of VAT)
- VAT rate charged
- For goods and services you’ve purchased:
- Time of supply
- Value excluding VAT
- VAT paid
- If using a retail VAT scheme, your daily gross takings
Also, on each VAT return:
- Reverse charge transactions where you are both buying and selling goods
- If using a flat rate scheme, items where you can reclaim the VAT
While you should record the details of all transactions in a digital format or software, you do not need to scan paper receipts or invoices.
Are there any exceptions to MTD for VAT?
The extension to the MTD regulations applies to all VAT registered businesses and organisations in the UK. There are a very small number of exceptions if it is not reasonable or practical because of your age, a disability or you have religious grounds for not using the internet and computers. HMRC will consider exemptions on a case-by-case basis, and you will need to have a strong reason to be exempted.
What do business need to do now?
Now is the time to talk to your accountant to help you understand the MTD changes and how to sign up and start filing reports through MTD. An accountant or tax adviser can advise on how and when to digitise any paper-based systems. Businesses may also benefit from having a discussion with Scrutton Bland’s SB Digital team who can give independent professional advice and training on financial software and help businesses to integrate cloud-based accounting solutions into their business processes. As well as helping to make MTD easier to manage, the SB Digital team can show you how to maximise new or existing software in order to drive your business forward.
More information on signing up for MTD for VAT is available on the gov.uk website