Making Tax Digital for VAT
All VAT registered businesses will need to use MTD for VAT returns due on, or after 1 April 2022.
What is MTD?
MTD is a government initiative to digitise the tax system. It means that you must keep certain records digitally and you need to submit them to HMRC using "functional compatible software".
What is “functional compatible software”?
This means one, or several software programs which can connect to HMRC’s Government Gateway. This is done using an approved Application Programming Interface (API). A list of accounting and bridging software can be found here.
What records do I need to keep digitally?
HMRC’s VAT Notice 700/22 sets out what VAT records must be kept digitally which includes:
Your business name, address and VAT number
Your VAT scheme
The rate of VAT charged, the date of supply and the value of supply to your customers
The rate of VAT charged, the date of supply and the value of supply from your suppliers.
Any adjustments you make to a VAT return
Can I be exempt for any reason?
You can apply for an exemption with HMRC for any of the following reasons:
Age, disability or you live in a remote location with no internet
It’s unreasonable or impracticable
Religious grounds
Apply for an exemption here.
Can I still use my spreadsheet?
Yes! As long as you can get the VAT return figures for all 9 boxes from your spreadsheet to HMRC digitally. This means you will need to use bridging software.
You cannot manually type them or copy and paste them into an accounting system from a spreadsheet. This breaks the “digital linking” rules and could lead to penalties from HMRC.
Will I still need to keep paper receipts?
If you are storing your receipts on accounting software such as Xero then you do not need to keep the physical receipt as long as the digital copy is an exact record of the original receipt. I.e. you have not tampered with it.
How do I sign up for MTD?
If you have a bookkeeping or accountant submitting your VAT returns they will do this for you.
If you are doing your own VAT returns you will need to sign up to the new system.
You can sign up here.
Need help?
If you would like to discuss how I can help you move your accounting records onto Xero and move you forward to becoming MTD ready, book a free discovery call.
To learn more about Xero, click here.