In November 2020, HMRC announced that Making Tax Digital (MTD) rules will be mandatory for ALL VAT-registered businesses with a taxable turnover below £85,000 from their first return on or after 1 April 2022.
Are you compliant?
In this blog, we cover the basics to help you get a better understanding and be more confident about MTD for VAT.
What is Making Tax Digital?
Making Tax Digital is part of a wider government initiative to make tax administration more efficient and effective. MTD replaces manual tax administration with two things:
- An online system where you can submit VAT returns (with MTD compatible software)
- The digitisation of business records
You can read more about the scheme here.
What records do you need to keep digitally?
As part of the rules, businesses will be required to keep a record of all accounting transactions digitally – handwritten records are no longer acceptable.
If you use a scheme you may be required to keep additional records:
- Retail Scheme: total daily gross takings
- Flat Rate Scheme: items that VAT can be reclaimed on
Although all your transactions must be archived digitally, you are not required to scan additional records like invoices or receipts.
Finding the right software
Compatible VAT record keeping software connects to HMRC systems. It must be able to:
- Keep and maintain digital records specified in the regulations
- Prepare VAT returns using these records
- Communicate with HMRC via a digital link
You can check your software, or find a compatible product here, If you are considering changing your accounting software we will be happy to guide and assist you.
If you find that you need to link your software packages (e.g., if you use more than one software or if you are maintaining them using spreadsheets), you can use a digital link. But what does a digital link comprise of?
HMRC highlight the following:
- Data is electronically transferred between software programmes, products, or applications. This may include using a formula to link cells in spreadsheets (e.g., where cells are linked by using a formula in one sheet that mirrors the source’s value in another cell)
- The transfer is automatic (data cannot be manually moved between software or copied over by hand i.e., copy and paste).
For those who are unable to keep digital records of a business or use digital tools to submit VAT returns (may be impractical due to age, disability or location), you can ask HMRC for an exemption from MTD and follow the guidance in Section 3.4 of Notice 700/22.
Get in touch
If you have any questions in relation to becoming MTD compliant, (including reviewing your current VAT procedures, guiding you towards a suitable solution, assisting with quarterly submissions to HMRC and even providing training for your team), our team of digital experts in the PM+M cloud team can help! We have already helped hundreds of businesses become compliant – read some of our client testimonials by clicking here. To find out more, get in touch with Jill Morris by clicking the button below.