How will this MTD change effect your business?
Firstly, if your business taxable turnover is higher than £85,000 you don’t need to worry, you will already be using MTD to submit your VAT returns. If your business has a lower turnover than £85,000 listen up… the following update applies to your business.
If your business is VAT-registered then using Making Tax Digital for VAT is required within your business as of April 2022.
What does this mean?
- You will be required to sign up to MTD for VAT if you are not already submitting MTD VAT returns to HMRC. As part of the sign-up process, you will be required to create a new direct debit for VAT payments.
- You will be required to keep digital business records for the first VAT period commencing on or after 1 April 2022, and all VAT periods thereafter.
- You will be required to use MTD compatible software to submit your VAT returns to HMRC for the periods commencing on or after 1 April 2022.
- If more than one software package or spreadsheet is used, they must be digitally linked.
Do I have to move to cloud-based accounting software?
To save yourself time and effort it could be well worth looking at investing in a cloud-based accounting software to help manage your small business finances. Providers such as Sage, Quickbooks and Xero offer smaller accounts packages to help small businesses. Personally, we love Sage and think it offers everything your small business will need. We can help provide training and on-going support to help you navigate your new software.
What about just using spreadsheets in excel?
The truth is that you can for now.
However, there is a strong chance this may change in the future. Plus, you will still need to find a compliant software with the relevant APIs to pull the information directly from your spreadsheet and submit the right numbers to HMRC without any manual intervention.
We would only recommend excel for the smallest and simplest of businesses, as there is so much opportunity for error, and you will still have to keep all the bulky manual records and receipts for 6 years.
Why should I switch to MTD for VAT now?
If you’re already using accounting software, the transition might be relatively straightforward and could involve little more than signing up for MTD for VAT, then activating the feature in your software. Alternatively, your accountant might be able to do this for you – just ask them.
We recommend that businesses affected register for MTD for VAT now, before you are legally required to make the switch. There are many benefits to registering early, as it will give you an opportunity to get used to new compatible software and digital links, allowing you to iron out any issues in plenty of time. Plus, this change will affect lots of businesses so with the deadline looming, accountants will start to get busy.
You can read more about the MTD changes on the GOV.UK website. https://www.gov.uk/charge-reclaim-record-vat