How to Prepare for Making Tax Digital

From April 1 2022, all VAT-registered businesses will have to submit their accounts via software compliant with the government's Making Tax Digital (MTD) scheme.

Since 2019 only businesses which exceeded the VAT threshold of £85,000 have needed to submit their tax details in this way. From next year, however, an additional 7,000 registered VAT businesses will be eligible.

All VAT-compliant businesses affected

To comply with the new HMRC Making Tax Digital rules, these businesses must have a cloud computer software package – one which is compliant with the government's own Application Programming Interface (API) system. What this means, in essence, is that it will no longer be possible for VAT-eligible businesses to submit via the HMRC website.

The government itself hasn't recommended or provided any software compliant with the VAT Making Tax Digital system. Instead, businesses without an accountant will have to find their own third-party provider to supply the appropriate software.

Only cloud-based accounting packages are MTD ready

The majority of current desktop accounting software won't be compatible with the government's system and will likely need to be updated. The same applies to older accounting software packages. Cloud-based software packages should automatically update for HMRC's Making Tax Digital system. This is the type of software that allows you to access your data anywhere that you can log in with a device, such as a mobile or laptop. Those who use a spreadsheet for keeping on top of VAT should be able to use MTD-compatible bridging software to allow them to file their records.

Getting ready to switch to MTD

You can go over to the VAT Making Tax Digital system any time you like before the deadline, but the sooner, the better. That way, you can iron out any niggles well before the requirement to submit.

You can be sure too that plenty of businesses will leave it to the last minute, meaning that if you need HMRC's assistance, their helpline is going to be inundated with enquiries. If you have an accountant such as ourselves, they'll be able to assist with this transition. However, again, allow sufficient time for them to complete these tasks – especially when there are several VAT-compliant clients on their books – so that all necessary deadlines can be met.

If you're doing your own VAT filing, register with HMRC for VAT submission and activate the relevant feature in your new or updated accounting software to get started.

Benefits of MTD

Yes, it all feels like a real hassle just now, but once you're up-and-running, there are benefits from the HMRC Making Tax Digital system. It should, for instance, make your record-keeping more efficient. You'll also be able to see at a glance how your business is doing and what areas require evaluation.

New MTD points system for late payments

Unlike the previous penalty system, points are given out for submitting late payments. Once a certain number of points are reached, an automatic £200 fine is handed out. One point is handed out per missed payment deadline.

For annual submissions, two points will lead to the fine. It's four points for quarterly submissions and five for monthly accounts reporting.

Need help with MTD submission?

If your business is VAT-registered and you would like help transferring to the new HMRC Making Tax Digital system, please get in touch with the team here at Keith Graham.

We offer a detailed VAT advice service for small businesses. You can call us on 01252 312561 or email via info@keith-graham.co.uk.