How to get ready for Making Tax Digital for VAT

If you’re a business registered for VAT with a turnover of under £85,000, you need to know about Making Tax Digital for VAT (MTD). Your deadline is April 2022, so now is the time to sign up, do your research, and choose the right software.

What is Making Tax Digital for VAT? 

The aim of MTD for VAT is to make it easier for businesses to declare tax to HMRC by using digital accounting software.

Since the first phase of MTD for VAT in April 2019, UK businesses with a turnover above the £85,000 VAT threshold have been processing their returns digitally. From 1st April 2022, all businesses, including those registered for VAT with a turnover of under £85,000, will be required by law to record transactions digitally and submit returns to HMRC using compatible accounting software.

Get ready for MTD for VAT in 3 steps

 Take the stress out of preparing for MTD for VAT and enjoy a seamless transition by following our 3 simple steps:

  1. Sign-up

You’ll need to sign up for MTD for VAT so you can start keeping digital records and be ready to submit your business’s VAT return using compatible software — more on that in Step 2.

To sign up, you’ll need:

  • your business email address
  • a Government Gateway user ID and password — if you don’t have a user ID, you can create one when you use the service
  • your VAT registration number and latest VAT return.

You’ll also need:

  • your National Insurance number if you’re a sole trader
  • your company registration number and Unique Taxpayer Reference if you’re a limited company or registered society
  • your Unique Taxpayer Reference and the postcode where you’re registered for Self-Assessment if you’re a general partnership
  • your Unique Taxpayer Reference, the postcode where you’re registered for Self-Assessment and your company’s registration number if you’re a limited partnership.

            When to sign up

Before you sign up, make sure all your non-MTD VAT returns have been filed. This is because once you have signed up, you won’t be able to file any VAT returns through the Government Gateway online VAT return or using non-MTD compatible VAT filing software.

If you already pay by Direct Debit, don’t sign up too close to the date your return is due, or you may pay twice. To avoid this, do not sign up less than:

  • 7 days before your return is due
  • 5 days after your return is due.

If you don’t pay by Direct Debit, sign up at least 3 days before your return is due.

  1. Research and choose compatible software

Choosing the right software in preparation for MTD for VAT is crucial. You’ll be using it to keep digital records as well as submit your returns, so it needs to be easy to use and MTD-compliant. A list of compatible options is available from the GOV.UK website.

At WCL, we recommend using Xero. A tried and tested favourite, Xero is user-friendly, efficient and 100% HMRC compliant. As a Xero Gold Partner, we can support you throughout the process, from getting set up to submitting your returns. Xero automatically records VAT collected and paid, which ensures consistency and accuracy in your record-keeping and saves you time.

  1. Authorise your MTD for VAT software

Before a VAT return can be filed from MTD compatible software, the software must be authorised to communicate with HMRC systems. This process is initiated by the software product (such as Xero) and will look slightly different in each product.

The process involves:

  • Checking that the product has been upgraded by the software supplier to be MTD compatible
  • Entering your business’s Government Gateway User ID and password into the software
  • Providing additional details including setting up two-step verification (2SV).

Once HMRC have granted access, your software should display your new VAT overview.

Preparing for MTD for VAT doesn’t have to be difficult or stressful. We can advise and support you through every step of the process, making sure you’re secure with your new software, and ready to go, well before the April 1st deadline.

Contact us today to find out more.