Is your business voluntarily registered for VAT? From 1st April 2022, you’ll have to comply with Making Tax Digital (MTD) regulations, retaining records digitally and filing your VAT returns with HMRC using MTD-compatible software.
Since April 2019, businesses with a taxable turnover exceeding the threshold for compulsory VAT registration – currently £85k, have been required to file returns using MTD. But from April, MTD is being extended to include all VAT registered businesses.
If your rolling 12 months turnover is less than £83k, you do have the option to deregister, but on the basis that you’ll have selected voluntary registration for the financial or commercial benefits it brings you, this is unlikely to be an attractive option. In any case, even if you do deregister, all tax-paying businesses and individuals will soon have to be MTD compliant. Self-employed business owners and landlords with annual business or property income over £10k will have to follow MTD rules from April 2024; partnerships will be close behind, and Corporation Tax is due to go digital from 2026.
As the government’s plans to digitise the tax system are rolled out apace, any delay in adopting MTD will only be putting off the inevitable, so it’s best to embrace it now.
If you’re voluntarily VAT registered and still not ready for MTD, you really don’t have much time left to prepare. For a business with a VAT quarter ending on 31st March, the first VAT return to be affected will be due in June, giving little enough time to get ready. But businesses with VAT quarters ending 31st January or 28th February will be affected from the start of their next VAT period on 1st May or 1st June 2022 respectively with the added complication of this potentially crossing a financial year.
It’s time to go digital
If your VAT registered business is still depending on spreadsheets or any kind of paper-based bookkeeping system – or if you’re using desktop software that doesn’t support MTD, you must transition to a solution that connects with HMRC’s systems immediately in order to get your first digital return in on schedule
If you’ve been getting by with a manual system up to now, your accounting is likely to be relatively straightforward, so making the transition to MTD-compatible software shouldn’t be a complicated process. But inevitably, setting up new software will take time, requiring you to migrate data from your legacy system, integrate your online banking and train your team, so they know how to input and export information.
There are plenty of MTD compatible software packages to choose from. Which one is best for you will depend on the nature of your business and the scale of your transactions. At Inca, we’re familiar with all the major products; we can recommend the most appropriate one for your business and help you get set up.
Embracing MTD will benefit your business
The government is introducing MTD to make it easier for businesses to stay on top of their day-to-day accounting and make tax administration more effective, efficient and easier for taxpayers. However, we appreciate that for some business owners who’ve been getting by with spreadsheets or paper-based record-keeping until now, MTD might seem like an unnecessary inconvenience. If this includes you, here’s a reminder of some of the ways MTD will benefit your business:
- Reduce errors: By eliminating the requirement to input data multiple times, MTD significantly reduces the risk of human error – potentially saving you money.
- Save time: Online record-keeping means your quarterly VAT returns are calculated automatically and can be submitted to HMRC with the click of a mouse – leaving you more time to spend on your business.
- More insight: A digital accounting solution will give you instant, real-time insights into your business, enabling you to be proactive rather than reactive and make smarter, more informed decisions.
- Protect data: keeping your records backed up in digital format (in the cloud if you opt for a cloud-based solution) ensures they’re protected against all threats, including technical failure and natural disasters.
- Less paperwork and filing: By law, you must keep your VAT records for at least six years. Whether you store records on or off-site, they’ll take up space, and there will be a cost. Keeping records digitally or in the cloud will save you space and money.
Do you need help transitioning your VAT registered business to MTD in time for the April deadline? Inca can provide you with advice and practical support through all stages. We can recommend the most appropriate solution for your business*, help you set up and configure your new system, migrate data, train your team and guide you through your first MTD VAT return.
*Inca has access to introductory and long-term discounts for all major products, including Xero and QuickBooks – from as little as £5 + VAT per month!