It’s not long to go before 1st April 2022. What is the relevance of this date you ask? This is the date MTD comes into play if you are a VAT Registered business but not yet filing under MTD.
What is MTD?
Making Tax Digital (MTD) is HM Revenue & Customs plan to digitise our tax system. They started with VAT and more specifically those businesses whose turnover was more than the current registration limit of £85,000. These measures came into play in April 2019.
Since that date the world has seen a lot of changes so HMRC delayed the next phase of MTD.
The next part is to capture those businesses who are VAT Registered but the turnover is less than £85,000.
The third stage will be those of you who are landlords and self-employed. MTD was planned to come in effect for these from April 2024 but has now been delayed until 2026 (updated December 2022)
And finally, corporation tax will be caught under the legislation currently expected to take place in April 2026.
So if you are in business and not familiar with MTD you can read more about it here.
What does it mean to me or my business?
If you are a VAT registered business, you should be filing your quarterly VAT Returns under MTD but you may have taken the exemption available for a smaller business.
For any VAT Periods starting 1st April 2022, all VAT Returns must now be submitted via MTD.
To be compliant with HMRC regulations you will also need to keep digital records
When we speak to many of you about digital records, there is confusion as to what it really means. So, what does it mean to have digital records?
Digital records are when you must do your record keeping in a digital way. In the context of what we are talking about here “digital” means “non-manual”. If you imagine the old-fashioned red cash ledgers in the bygone era, that is not digital.
Using MsWord is not digital, but Excel spreadsheet is digital.
Now this is not to say you cannot keep manual or paper records if you want to. But if that is all you do, you will not be able to submit your VAT Return.
Currently there is a portal at HMRC where you can go and type in the key numbers to complete the VAT Return. This will be switched off in due course.
In order to complete future VAT Returns i.e., those beginning from 1st April 2022, you will need to have a digital link
How do I complete a VAT Return after 1st April 2022?
Our top advice is to adopt cloud accounting.
By being on the cloud and using products like QuickBooks and Xero, you can submit your VAT Returns under MTD directly to HMRC.
Additionally, there are many other benefits such as:
- Increased efficiency because there will be more automation.
- Able to share your records with your accountant
- Relatively inexpensive to implement and you pay monthly so no initial outlay.
You may need some training and we can help you there. We have migrated hundreds of clients already to the cloud and have the in-house expertise to work with you.
What if I don’t want to use a cloud software
If you choose to carry on the way you do currently, then you will need to use a bridging software.
Bridging software provides the digital link and is basically an API enabled spreadsheet which links to your spreadsheet, and which will then transfer data to HMRC.
As mentioned above MsWord is not digital and Excel is digital, but it has no capability of directly submitting your VAT Return. So, you will need to use another spreadsheet (bridging software) which has been developed by software companies to make submissions to HMRC.
Previously you would normally go to HMRC website and key in the numbers. Now this is out of the question.
Depending on how you keep your current records, the following will apply
- If you keep spreadsheets, your digital journey will have started so you can have no further manual intervention. Your spreadsheet will need to link to the Bridging software.
- If you keep other forms of paper records like cashbooks then you will need to create a spreadsheet and then use a bridging software.
On many occasions this way of working creates extra work and takes time without creating any benefits. This is why we discourage use of the bridging software where possible.
Using a cloud product is not expensive, can be quick, and will generate benefits such as seamless data sharing and better business insights.
We understand that it is not always possible to move to the cloud, so you do need to talk this through with your accountant. If you work with us, then please get in touch now. Call or email your normal manger.
If you are not working with us yet, please email Priya at priyar@myersclark.co.uk