Making Tax Digital for VAT: How to Prepare Your Business

What is Making Tax Digital?

It’s the digitalisation of UK Tax, so gone are paper records when it comes to submitting VAT returns. Instead, you’ll need to store and submit them digitally.

Prior to 1 April 2022, VAT-registered businesses with a taxable turnover above the VAT threshold (£85,000) were required to follow the Making Tax Digital rules by keeping digital records and using software to submit their VAT returns.

From 1 April 2022 all VAT registered businesses must sign up, whatever they earn.

How does Making Tax Digital for VAT work?

To sign up to Making Tax Digital for VAT, businesses, or an agent on a businesses’ behalf, need to:

1. choose Making Tax Digital-compatible software
2. keep digital records
3. sign up and submit their VAT Return through Making Tax Digital

And you should do so now to ensure that you’re ready in time for any deadlines.

What records will I need to keep?

As part of MTD, you’ll need to keep the following records digitally:

• your business name, address and VAT registration number
• any VAT accounting schemes you use
• the VAT on goods and services you supply, for example everything you sell, lease, transfer or hire out (supplies made)
• the VAT on goods and services you receive, for example everything you buy, lease, rent or hire (supplies received)
• any adjustments you make to a return
• the ‘time of supply’ and ‘value of supply’ (value excluding VAT) for everything you buy and sell
• the rate of VAT charged on goods and services you supply
• reverse charge transactions – where you record the VAT on both the sale price and the purchase price of goods and services you buy
• your total daily gross takings if you use a retail scheme
• items you can reclaim VAT on if you use the Flat Rate Scheme
• your total sales, and the VAT on those sales, if you trade in gold and use the Gold Accounting Scheme

You also need to keep digital copies of documents that cover multiple transactions made on behalf of your business by:

• volunteers for charity fundraising
• a third party business
• employees for expenses in petty cash

How will Making Tax Digital affect me?

• you’ll need to find compatible software
• keep digital accounting records, for every business transaction (paper records will no longer be accepted)
• for each business you have, you need to submit tax returns throughout the financial year, including:
• quarterly VAT returns
• quarterly income tax self-assessment (instead of one single annual submission)
• annual end-of-period income tax self-assessment statement (where you can make any adjustments and corrections)

Does this mean I can no longer use spreadsheets?

You can, but you still need to submit records and returns digitally via HMRC-approved software. Because of this, it’s a good idea to look for a system that connects your spreadsheets to HMRC’s system if yours doesn’t already.

When is the deadline for Making Tax Digital?

There are two upcoming deadlines that smaller businesses and sole traders need to be aware of:

• April 2022: Any remaining VAT-registered businesses must sign up for MTD (you don’t need to wait for this deadline though, you can sign up any time before) – you must follow digital record keeping requirements for the first full VAT period that starts after 1 April 2022
• April 2024: Self-employed businesses and landlords with annual business or property gross income above £10,000

How do I register for Making Tax Digital?

Once you have your software in place, you’re ready to sign up for MTD. You’ll need to register on the government website. You won’t be enrolled automatically, so make sure you register in time for your first MTD return deadline.

To sign up, you’ll need the following:

• your business email address
• Government Gateway user ID and password (if you don’t have one, you can create one here)
• VAT registration number
• latest VAT return

You can find further details about how to sign up for Making Tax Digital here.

The new rules won’t change your normal VAT return deadlines or the information you need to send. You can check when your next return is due on your online VAT account.