Another day and another acknowledgment that come April 1st 2022, all VAT registered businesses will have to use the Making Tax Digital (MTD) system. You may be tired of hearing that making digital VAT returns has been a requirement for businesses with an annual turnover of over £85, 000 since 2019, however in a few weeks’ time all non-exempt VAT registered businesses will have to comply with MTD and go digital in terms of storing their VAT accounting records.
Should HMRC view your accounts after the period of April 1st 2022 and MTD isn’t set up, then HMRC could sanction a £400 fine for failing to submit under MTD regulations.
Here’s what you need to know before the 1st April 2022 deadline…
Who Needs To Register For Making Tax Digital (MTD)?
After MTD was first announced back in 2019, there have been numerous stumbling blocks which have led to deadlines being extended in the wake of the COVID-19 pandemic. This has led to many SME businesses feeling underprepared and under pressure to go digital before the deadline strikes. According to a QuickBooks survey, 82% of all VAT registered businesses are still unaware of the requirement coming into force. As well as this, only a third of businesses actually know what to do and feel confident of meeting the deadline. These worrying statistics has led to the overall perception that HMRC haven’t done enough in promoting and educating the public on MTD.
In order to be compliant, you will need to register for MTD via the dedicated government portal. However, it’s worth noting that this cannot be done less than five days before your accounts are due. This means for those that haven’t already registered, 27th March is the final day. You will need:
- Your business email address
- Government Gateway user ID and password – if you do not have a user ID, you can create one when you use the service
- Your VAT registration number and latest VAT return
- Your National Insurance number if you’re a sole trader
- Your company registration number and Unique Taxpayer Reference if you’re a limited company or registered society
- Your Unique Taxpayer Reference and the postcode where you’re registered for Self-Assessment if you’re a general partnership
- Your Unique Taxpayer Reference, the postcode where you’re registered for Self-Assessment and your company’s registration number if you’re a limited partnership
What Software Is Best For Making Tax Digital (MTD)?
You will also be legally required to state which accounting software you intend to use to file and submit your VAT returns. It’s highly recommended you do your research beforehand, as there are so many different software and platforms on the market. The main, and most popular platforms, are Xero, QuickBooks, Sage, Kashflow and FreeAgent.
At Nordens, our dedicated Cloud Accounting department can help with this as well as check beforehand you are subscribing to an MTD-compatible software package for VAT before purchasing. MTD-compatible software means that the accounting platform chosen directly integrates and provides information to HMRC, which then maintains all digital records mandated by the new regulations.
The software must also calculate:
- The amount of VAT you pay on your products and services (both supplied and received)
- The source of your VAT transactions
- Any adjustments made to your VAT tax returns
If I Don’t Need To, Should I Not Register For Making Tax Digital (MTD)?
The next scheduled phase of the MTD scheme is for self-assessment income tax, which will now happen in April 2024 and will apply to taxpayers who file Income Tax Self Assessments for business or property income equating to £10,000 or more a year. This is most specifically aimed at self-employed people and landlords who make over £10,000 a year.
Despite many individuals and businesses not needing to register for MTD this year, it’s highly recommended to get your affairs in order and register now. The importance extends beyond the fact that soon it will be legal requirement for every business and sole trader, in that everyone should be embracing the technology on offer. By transitioning to MTD, businesses and individuals will have access to Real Time Information (RTI) which can be of huge value in terms of better decisions being made to execute growth and increased profitability. From a forecasting and logistics angle, being exposed to this data is a huge benefit to business owners and when used right can seriously take the business to the next level.
We hope this has outlined to you what is needed ahead of the 1st April 2022 deadline for VAT registered businesses signing up to MTD. If you require any more information on MTD or anything accounting related for that matter, please don’t hesitate to get in contact with us at Nordens where one of our trusted advisors would be happy talking you through your query.