Making tax digital for VAT after April – what now?

Making tax digital for VAT after April – what now?

Making Tax Digital, the Treasury's quest to digitize how we file tax returns and make VAT more transparent, changes in April. Small Business

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Making Tax Digital, the Treasury’s quest to digitize how we file tax returns and make VAT more transparent, changes in April. Small Business sat down with Fabiano Rocha, product marketing manager at Sage, who explained what had changed.

What is changing to make taxes digital in April?

Making taxes digital is the biggest fluctuation so far in the UK’s tax systems; that’s why everyone from HMRC to your accountant and companies like Sage have been talking about it the last few years.

Although the intention in 2015 to get all kinds of tax filing done digitally by 2020, after public consultation and due to the impact of disruptive events like Covid and Brexit, the 2020 timeline has been revised several times to what the current dates are. .

The first changes were implemented in 2019 for VAT-registered businesses above the £ 85,000 taxable turnover threshold. Those below the mandatory VAT registration threshold were invited to join if they wished, but they were not required to do so. This is what will change on 1 April 2022. All VAT registered businesses will now have to comply with the MTD rules, which will effectively affect businesses below the £ 85,000 taxable turnover threshold. However, it is worth mentioning that the timelines to when a business is affected may differ.

So, if so, when is my first VAT return due under MTD rules?

This will be for your first full VAT period starting on or after April 1st. This is when you are expected to start keeping digital records and submit your VAT returns digitally to HMRC.

To make it easier, let me give you an example using the standard quarterly VAT accounting periods:

For example, if your quarterly VAT period ends on March 31st, you will need to start complying with the Making Tax Digital rules for the period beginning on April 1st.

However, if, for example, your quarterly VAT period ends on 31 May, you will first be required to follow the new MTD rules from the period beginning on 1 June.

It is also valid for businesses with monthly and annual period, so keep in mind what the VAT accounting periods look like.

But it is also important to know when to register.

> See also: Make Taxes Digital for VAT: 6 Simple Tips to Get Your Business Ready

When should a business register against?

It is important to emphasize that MTD does not happen automatically. Businesses, whether themselves or their accountant, must register in time to submit their first VAT return in accordance with MTD rules. When businesses report late, they run the risk of overlapping with the older VAT system, including accidentally making double payments, which is something no one wants.

The timelines to keep in mind are:

  1. If the business pays by direct debit, you must report no less than seven days before the VAT return or less than five days after your VAT return is due.
  2. If the business does not pay by direct debit, then sign up at least three days before your VAT return is payable.

As a side note, keep in mind that businesses will be invited to set up a new direct debit for MTD for VAT if this is the way they pay.

Can a business be exempted from these changes?

Businesses can not simply withdraw from any MTD scheme. This includes MTD for VAT. If they are eligible, they are required by law to register in time for any deadlines and keep your VAT records digital, as well as use the right kind of compatible software to file tax returns or other required updates.

But the government does allow exemption for some people it believes are digitally excluded.

These could be people who live so far away that they simply do not have an internet connection. Therefore, they can not file a VAT return online, so they can not follow the MTD for VAT rules.

Also included are people whose disabilities or age make using a computer difficult or impossible. Some religious beliefs can also mean that people are released because they are forbidden to use a computer.

If a business believes any of these apply to them, they should talk to HMRC. This is important because they can not just declare that they have decided they are released. They must ask HMRC to grant an exemption. This can be done by calling or writing to them and stating your case. But in the end, the decision rests with them.

If HMRC does decide that a business can be exempted, they will continue to file VAT returns the way they always did, such as by filling out a VAT return paper form and mailing it to HMRC.

What type of software can I use?

Businesses need to adopt software that enables them to digitize their VAT record keeping and submit their VAT return digitally and directly to HMRC. This can be done by either adopting a compatible software package such as Sage Accounting that enables them to perform both requirements; or by using bridging software to connect incompatible software (such as spreadsheets) to HMRC systems.

Most people use accounting software to ensure that they meet the two key requirements just mentioned. Most leading accounting software has mobile applications that facilitate the capture and digitization of data, which will help you not to overlook this essential step in MTD compliance. Also, accounting software is likely to provide several automated processes that can facilitate many of the old-fashioned work of accounting, such as reconciling payments against invoices, automatically applying the correct VAT rates, direct calculation of VAT accounts for continuous period and the provision of insights on cash flow.

What if I still use spreadsheets?

If you use a spreadsheet for your VAT accounting, it is possible to continue to do so taking into account the above requirements. But you run the risk of losing data by accidentally overwriting the contents of a cell, breaking a formula that can generate incorrect output data or, for example, breaking the digital link between the source of records and the VAT output.

Spreadsheets can meet compliance needs, but they are not the most reliable way to store data. And when the law requires you to store certain types of data in specific ways, it begins to unravel surprisingly quickly.

As businesses are required to go through this digitization process to comply with these MTD changes, it is advisable to adopt best practices from the outset to facilitate the transition. Therefore, it only makes sense to use it as a lever to increase productivity and daily administration of affected businesses.

So, to conclude, should our readers be aware of any more MTD dates in the future?

Yes definitely. As I mentioned before, the Making Tax Digital program’s timeline has been revised and will affect different types of taxes. All VAT registered businesses will be affected by Making Tax Digital from April 2022, but it does not stop there. MTD will then influence Income Tax Self-Assessment (ITSA) in 2014 for self-employed professionals and those with property rental income with earnings above £ 10,000 and, in April 2015, for general partnerships. Then corporation tax will be affected at the earliest from April 2026.

What should I do now?

What I would suggest is that even if you are not affected by changes right now, you are still considering adopting best practices as soon as possible. Not only will this make the transition easier, but you will also benefit from the improvement of your daily administrator, which saves you time on tedious tasks. Working with an accountant will also help you to have much more informed and productive conversations with them, especially if you are on a tight budget.

Thank you, Fabiano. Our readers report that Making Tax Digital really helps when linked to your accounting software and your bank account, giving you a 360-degree view of your business.

Small business spoke to Fabiano Rocha, Product Marketing Manager at Sage

This article was written as part of a paid content campaign with Sage

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