This year, the laws on paying VAT are changing. Here is what you need to know about Making Tax Digital for VAT.
What is Making Tax Digital?
Making Tax Digital (MTD) is part of the government’s plan to transform tax administration and make it more effective, more efficient, and easier for businesses and individuals to record transactions and declare tax to HMRC and be compliant with all requirements.
From April 2022, all VAT-registered businesses must comply with Making Tax Digital for VAT.
Who needs to use Making Tax Digital for VAT?
Under the new rules, HMRC will legally require eligible businesses to record transactions digitally and submit VAT returns to HMRC using compatible accounting software.
VAT-registered businesses with a taxable turnover above the VAT threshold (currently £85,000) are already required to use MTD.
Businesses using the VAT GIANT service, such as government departments and NHS Trusts, do not need to use the MTD service. This is also the case for businesses who have successfully applied for exemption due to age, disability, location or another practical reason MTD cannot be complied with.
From 1st April 2022, all remaining VAT-registered businesses must comply with MTD.
How to keep digital records for VAT returns
To keep digital records for your VAT returns, you will need to use software that connects to HMRC systems. You can find a list of such software on the government website.
You may use more than one software package to keep your records, but they need to be linked, such as by emailing records, importing and exporting XML and CSV files, downloading and uploading files, or using formulas to link cells in spreadsheets.
VAT records for Making Tax Digital
To be compliant with Making Tax Digital for VAT, you must keep the following records digitally:
● Business name, address, and VAT registration number.
● Any VAT accounting schemes used.
● The VAT on goods and services you supply, including everything you sell, lease, transfer or hire out.
● The VAT on goods and services you receive, including everything you buy, lease, rent, or hire.
● The time of supply and value of supply for everything you buy and sell.
● Any adjustments made to a return.
● Reverse charge transactions.
● Your total gross takings, if a retail scheme is used.
● Items you can reclaim VAT on if you use the Flat Rate Scheme.
Transactions made on behalf of your business
If a third-party business, volunteers for charity fundraising, or employees (for expenses) make transactions on behalf of your business, then digital copies of these transactions need to be made and added to your digital records.
VAT return deadlines for Making Tax Digital
The deadlines for sending VAT returns will remain the same when you sign up for Making Tax Digital. Your VAT return and payment deadlines can be found in your VAT online account, but they are usually 1 calendar month and 7 days after the end of an accounting period.
If you need help with keeping digital records or making your tax returns, please get in touch, – we will be happy to help.