Get Ready for MTD

Making Tax Digital (MTD) will come into play from 1st April 2022, making it compulsory for all businesses, regardless of their annual taxable turnover, to both keep their VAT records and submit VAT returns digitally. 

All companies with a taxable turnover of £85,000 or over will be required to register for VAT as normal. If your business is already VAT registered and your taxable turnover is below the threshold, you must comply with MTD from the start of your next VAT quarter following  1st April 2021. 

Keeping Digital Records

Keeping records digitally means that certain records must be recorded and stored in a digital format and all VAT returns must be submitted digitally to HMRC using compatible software. 

HMRC will require the following data to be stored digitally, however you will not be required to submit this data to HMRC with your VAT returns:

  • Business information – which includes your business name, principal place of business address, VAT registration number and any VAT scheme you may be using.
  • Sales and purchases – for each supply you must record
    • The date of supply (tax point)
    • Net value of the supply
    • Rate of VAT charged/ claimed
  • This only applies to supplies and purchases that are included in your VAT return, supplies/purchases that do not go on your VAT return are not required to be recorded digitally. You also do not need to record every single item, if more than one item is purchased in a transaction, a single entry for the invoice will suffice. For invoices that contain items at different VAT rates you will need to detail the total VAT of the different VAT rates. If you are using software it should be able to deal with this, however if you are using a spreadsheet you may have to add in different columns for each VAT rate.
  • Reverse charge transactions – If your software does not record reverse charge transactions you will need to record the reverse charge twice, once as a supply made and a second time as a supply received.
  • Supporting information – HMRC will require the following information to support each VAT return:
      • The total output tax owing on sales
      • The total tax you owe on acquisitions from other EU member states
      • The total tax you are required to pay on behalf of your supplier under a reverse charge
      • The total input tax you are entitled to claim on business purchases
      • The total input tax allowable on acquisitions from other EU member states
      • The total tax that needs to be paid or you are entitled to reclaim following a correction or error adjustment, and
      • Any other adjustment allowed or required by VAT rules. A total of each type of adjustment must be recorded on a separate line.

If your business is:

  • Already using accounting software to produce VAT returns, you will already be compliant with MTD requirements to keep records digitally
  • Keep records on paper, you will not be compliant and at a minimum will have to start recording records on a spreadsheet.
  • Keeps records on a spreadsheet, you can continue to do so but will only be considered to be compliant if you keep all the information required as stated above. 

Schemes

  1. Retail Scheme- retailers will be required to keep digital records for their gross daily transactions. Multiple days can be input at one time, rather than each day, so long as there is a record of every day entered. It is advised that transactions are entered regularly to ensure your return in submitted on time. 
  2. Flat rate Scheme- businesses will not be required to keep digital records of purchases other than capital purchases over the value of £2,000. 
  3. Margin Scheme- the additional records required for this scheme are not required to be kept digitally, but are still required to be maintained. 

Submitting VAT Returns Digitally

HMRC will now require all businesses that fall under MTD to submit their VAT returns digitally to HMRC each quarter using either accounting software or bridging software. You will only be required to submit the 9 box figures from your VAT return and will not be required to submit your digital records.

  • Accounting software – if you are currently using accounting software to compile your VAT returns you will need to confirm that this software will be capable of submitting VAT returns that are compliant with MTD. You may already use the software to send your VAT returns directly to HMRC however this does not mean that the software will be compliant for MTD and you will have further steps to take before submitting your first MTD VAT return.
  • Bridging software – if you currently keep your information on paper/spreadsheets or if your existing accounting software will not be MTD compliant, you can use bridging software. This allows you to enter your 9 box figures into a form or excel document and connect to HMRC to upload the return digitally each quarter under MTD.
  • Digital Links- Once data has been entered into software used to maintain digital records, any further transfer, recapture or modification of that data must be done using digital links. This means you cannot take the figures from your digital records and manually type them into separate software to complete your VAT return. If you are using one accounting software to store your VAT information and submit your VAT returns digitally then your digital links will already exist. If you are using one piece of software to store your digital records and a second piece to submit your VAT return you will need to ensure a digital link exists between the 2. For example a digital link when using a spreadsheet would be if you have a formula on one sheet containing your digital records that mirrors the source’s value in another cell for your actual VAT return. 

The products you decide to use will depend on your needs /capabilities and is entirely up to yourself as long as they are on HMRC’s approved list. For details of approved software please see link below. 

https://www.gov.uk/guidance/find-software-thats-compatible-with-making-tax-digital-for-vat

When does the first MTD VAT return need to be filed?

The first VAT return that must be submitted following the rules of MTD will be the first full quarter after 1 April 2022.

 

VAT quarter end First mandatory MTD for VAT return period Digital accounting records to be kept Deadline for filing first mandatory MTD for VAT return
Mar, Jun, Sep, Dec 1 April 2022 – 30 June 2022 1 April 2022 7 August 2022
Jan, Apr, Jul, Oct 1 May 2022 – 31 July 2022 1 May 2022 7 September 2022
Feb, May, Aug, Nov 1 June 2022 – 31 August 2022 1 June 2022 7 October 2022

Exemptions

  • It is possible to apply for exemptions from MTD which are the same as the current exepmtions held e.g. age, disability, location (or any other valid reason) and those that do not use computers for religious reasons. 
  • If you currenlty hold and exemption, this will automatically be carried over. 
  • To apply for new exemptions will be very difficult to get with each case being looked at on their own merits.