At the moment, Making Tax Digital (or MTD for short) is all about VAT. In the coming months and years, however, it will also include Income Tax and Corporation Tax.
Under MTD, businesses and individuals are required to keep financial records in a digital format; and to submit tax returns digitally. Ultimately, MTD will mean the end of paper records and spreadsheets for most taxpayers.
Here's the roadmap:
- NOW - most VAT registered businesses with annual turnover above £85,000 are already using MTD for VAT
- APRIL 2022 - MTD for VAT will apply to all VAT registered businesses (with a few, limited exceptions)
- APRIL 2024 - MTD for Income Tax will apply to self-employed individuals and landlords with annual business or property income above £10,000
- APRIL 2026 - MTD for Corporation Tax may come into effect
An estimated 1.1 million VAT registered businesses who do not already keep their records digitally will need to start doing so from April 2022.
Research recently published by Intuit Quickbooks found that accounting professionals spend an average of seven working days (55 hours) helping each SME client get up to speed with MTD. A majority (62%) said that many of their clients are resistant to following the MTD rules; many are not digitally savvy and require help complying over the longer term.
Almost three quarters (74%) of the accountants surveyed were, however, positive about the long-term benefits of MTD. Pauline Green, head of product compliance & programs at Quickbooks, said 'Accountants and bookkeepers play a critical role in implementing Making Tax Digital, initially MTD for VAT phase 2 and then Income Tax Self Assessment (ITSA). Navigating legislation can be a difficult task, particularly for time-pressed small business owners, and many of these would be lost without the guidance of their accountant.'
HOW TO COMPLY WITH MTD FOR VAT
If your business is subject to MTD for VAT from April 2022, you may need to:
Register for the Government Gateway
The Government Gateway is used to pay taxes, check your tax account and receive updates. Set it up at www.gateway.gov.uk; you'll need your name, date of birth, NIC number and e:mail address. Once you've set up a password, you'll be issued a user ID which can then be used to access services including MTD for VAT. HMRC will send you an activation code in the post which you'll need in order to sign up for MTD for VAT.
Find out when you need to make your first MTD for VAT submission
For most VAT registered businesses with annual turnover below £85,000, this will be the first return starting on or after 1 April 2022.
- if your VAT return is for the quarter ended 31 March 2022, your first MTD for VAT return will be for the quarter starting 1 April 2022;
- if your VAT return is for the quarter ended 30 April 2022, your first MTD for VAT return will be for the quarter starting 1 May 2022;
- if your VAT return is for the quarter ended 31 May 2022, your first MTD for VAT return will be for the quarter starting 1 June 2022.
HMRC offers the following guidelines as to when you can sign up to MTD for VAT, and the earliest you can subsequently file your first MTD VAT return:
- if you pay by direct debit, you must allow five working days after the filing deadline for your final non-MTD return before signing up for MTD for VAT, and must allow at least seven working days before the filing deadline to file your first return under MTD.
- if you pay by non-direct debit methods, you must allow 24 hours after your last non-MTD return before signing up, and 72 hours after signing up before filing your first return under MTD.
- if you’ve filed your VAT return late, and you pay by direct debit, you must allow five working days after filing late before signing up. If you pay by non-direct debit methods then, as above, you must allow 24 hours before signing up if you’ve filed your VAT return late.
Businesses mandated for MTD for VAT as of April 2022 can sign up right now because the system is already up and running, and has been for several years. However, the limitations mentioned above mean you shouldn’t leave signing up too late. If your business has to file a VAT return for the April to June 2022 period, and it pays by direct debit, the latest the business can theoretically sign up is 31 July 2022 – seven days before the filing deadline. Those businesses that pay by non-direct debit methods can register as late as 72 hours before the filing deadline of 7 August 2022 – although again, it’s strongly advised to sign up earlier than this.
Sign up for MTD
Your business must register with HMRC for the MTD for VAT service in time for your MTD VAT return deadline.
If you’re signing up for VAT for the first time, MTD enrolment will be part of it, but if you’re already registered for VAT and are mandated for MTD as of April 2022, your business won’t be enrolled automatically. This is true even if you’ve previously filed your VAT returns using the VAT portal website, or using your accounting software.
The registration process involves logging in with the Government Gateway account for your business. You might have used this previously when filing VAT returns via the portal website. If you don’t have an account, you’ll be invited to create one, and will need an email address to do so.
Once the process is complete, which will take a few minutes, you’ll be emailed a Government Gateway ID. This will consist of a series of numbers.
To register for MTD for VAT with HMRC, you’ll need to input the following information when requested upon visiting the MTD for VAT registration website:
- your Government Gateway ID and password;
- your company’s VAT number;
- the date your business became VAT registered;
- the postcode of the principle place of business;
- the Box 5 amount from your most recent VAT return;
- the month in which your most recent VAT return was submitted.
Once you’ve inputted these details, HMRC will immediately verify them. If you’ve made any errors, you’ll be invited to input the details again. Verification from HMRC that your business can start submitting VAT returns via MTD for VAT might take up to 72 hours – you shouldn’t submit your VAT return until you receive this confirmation. This delay might run the risk of your submitting a late VAT return, so you should register now rather than later.
Ask your accountant for help
It probably makes sense to ask your accountant or bookkeeper for help complying with the new requirements; the team at Scholes CA has extensive experience of helping businesses to comply with MTD for VAT, right back to the first phase of the regime which launched in April 2019, so we are well placed to help businesses and individuals who are required to comply with the rules from 2022.
Identify and implement appropriate digital solution
MTD is all about recording and storing your financial information in a digital format; and sending information to HMRC using compatible software. For most businesses, the optimal solution is a quality accounting software product such as Quickbooks, Xero or Sage, each of which is MTD for VAT compliant. Used correctly, these types of software solution offer considerable advantages to the business owner over traditional spreadsheet or paper-based systems:
- more efficient recording of transactions with live 'bank feeds';
- better quality reporting and data analysis;
- better security/ disaster recovery capability;
- better accessibility as records can be accessed anywhere with internet, 24/7.
Once you've got your system in place, you'll then want to get up to speed quickly to make sure that your first MTD for VAT return is completed accurately and submitted to HMRC digitally in plenty of time.
Our team is able to help business owners who want advice and help with selecting, implementing and getting up to speed with appropriate accounting software; contact us today for help.