Step by step guide to Making Tax Digital for VAT

Making Tax Digital (MTD) is legislation from HMRC that affects how all VAT-registered businesses must do their VAT accounting.

This is a guide on MTD for VAT for both businesses and agents.

We squint at what considerations you should make surpassing registering.

With Making Tax Digital for VAT, if you have a merchantry that falls within its scope, you must submit VAT Returns via software.

And you need to alimony your VAT records digitally.

Essentially, MTD for VAT ways you must use written software that can connect to HMRC’s systems to file a VAT Return (or use a computerised written process that can do so).

And with VAT Return filing deadlines on the horizon, it’s vital that you’re pursuit the rules.

In fact, HMRC may have sent you an email or letter to highlight what you have to do now with regards to Making Tax Digital.

Plus, from 1 November 2022, you can no longer use your existing VAT online account to file quarterly or monthly VAT Returns (although for unrepealable businesses, HMRC have provided an extension. More details below).

According to TechRadar: “The weightier route to take for making the whole tax filing process plane easier is to select a comprehensive written solution,”—and it’s chosen Sage Written as the platonic choice to fit that criteria.

Sage’s Making Tax Digital Hub is regularly updated with information, including a timeline of events, but here’s what we imbricate in this article:

• What was the April 2022 mandation of MTD for VAT all about?
• When should businesses start pursuit Making Tax Digital for VAT?
• When should businesses sign up for MTD for VAT and file their first return?
• Registering for MTD for VAT as an wage-earner in 6 steps
• Registering for MTD for VAT as a business
• Final thoughts on Making Tax Digital for VAT

What was the April 2022 mandation of MTD for VAT all about?

Making Tax Digital for VAT applies to all VAT registered businesses (apart from those that are digitally excluded).

Any businesses that were registered for VAT but unelevated the VAT threshold (currently £85,000) didn’t have to follow MTD for VAT when the new legislation was first rolled out in April 2019.

But that reverted in April 2022, when the mandation of MTD for VAT for those businesses began.

Running a VAT registered merchantry and new to MTD for VAT?

If you’re eligible, you need to use follow the MTD rules from your first full VAT written period post-1 April 2022.

Note that using MTD for VAT-compatible written software doesn’t automatically midpoint you’re compliant.

You need to register for MTD for VAT, vivify the option within your written software, and demonstrate with HMRC’s computers.

When should businesses start pursuit Making Tax Digital for VAT?

The rule is simple for businesses new to MTD for VAT.

By law, you need to start waxy to Making Tax Digital from the first day of your first VAT period that begins on or without 1 April 2022.

You could, of course, have signed up earlier.

Therefore, for example:

• If your VAT period had a 31 March 2022 end date, your first VAT quarter under MTD for VAT starts on 1 April 2022.
• If your VAT period has a 30 April 2022 end date, your first VAT quarter under MTD for VAT starts on 1 May 2022.
• If your VAT period has a 31 May 2022 end date, your first VAT quarter under MTD for VAT starts 1 June 2022.

And from 1 November 2022, you’ll no longer be worldly-wise to file quarterly or monthly VAT Returns using your existing VAT online account.

(Do you file your VAT Returns annually? If so, equal to HMRC, you can protract to use your VAT online worth until 15 May 2023.)

But there’s a caveat to be enlightened of.

If your merchantry turnover is under the VAT threshold of £85,000 and you haven’t signed up for MTD for VAT in unbearable time to submit your next tax return by 7 November 2022, you can use your existing VAT online account.

Take note – it will only be for that return.

After that, you’ll need to use MTD-compatible software to file any quarterly or monthly VAT returns that are due without 1 December 2022.

If you don’t, you could squatter a penalty.

The only way you’ll be worldly-wise to submit VAT Returns is by signing up to MTD for VAT and using MTD uniform software. Make sure you’re doing that now or you could squatter a penalty from HMRC.

When should businesses sign up for MTD for VAT and file their first return?

The rules virtually when businesses or teachers vicarial for them, such as accountants, can and can’t sign up to Making Tax Digital for VAT are a bit complex.

It’s not possible to sign up for MTD for VAT until without the last non-MTD VAT Return has been filed.

Don’t forget that a VAT Return and payment must usually be filed within a timetable month plus seven days without the VAT written period ends.

However, you should unchangingly trammels the filing deadline for your merchantry in your online VAT worth at HMRC’s website.

HMRC offers the pursuit guidelines as to when businesses/agents can sign up to MTD for VAT, and the primeval the first MTD VAT Return can be filed as follows:

• If you pay by direct debit, you must indulge five working days without the filing deadline for your final non-MTD return surpassing signing up for MTD for VAT, and must indulge at least seven working days surpassing the filing deadline to file your first return under MTD.
• If you pay by non-direct debit methods, you must indulge 24 hours without your last non-MTD return surpassing signing up, and 72 hours without signing up surpassing filing your first return under MTD.

Suppose your merchantry needs to file a VAT Return for the April to June 2022 period, and it pays by uncontrived debit. In that case, the latest the merchantry can theoretically sign up is 31 July 2022—seven days surpassing the filing deadline.

However, it’s wise to do so earlier. That way, you can iron out any problems (if they arise) well superiority of time.

What happens if I miss my submission date?

In the first year of Making Tax Digital mandation, HMRC took a ‘light touch’ to penalties.

Now it’s not doing this. You need to get things right from day one or you may squatter penalties.

Beginning in January 2023, a points-based late submission system will wield to MTD for VAT.

There’ll moreover be penalty charges if you pay increasingly than 16 days late (or goof to stipulate to a Time to Pay wattle with HMRC).

Registering for MTD for VAT as an wage-earner in 6 steps

If you’re an agent/accountant, there are several things you’ll need to get ready in time for each vendee when it comes to MTD for VAT.

Alternatively, if you’re using an agent/accountant for MTD for VAT, you should ensure they’ve completed the pursuit on your behalf.

Step 1: Trammels if and when your vendee has to sign up for MTD for VAT

If you once act on behalf of the client, this information should be readily at hand.

But if they undertake their own returns, or if the vendee is new to your practice, there might be a need to contact them.

This will add a time overhead, expressly if the vendee is new to VAT and requires education virtually the fundamental principles.

Step 2: Get the right software

You need software uniform with MTD for VAT, which allows you to sign in using the Wage-earner Services account.

HMRC offers a tool that lets you search for MTD-ready software, and both businesses and teachers can use this. Notably, all key Sage products are compatible, including Sage Accounting.

Step 3: Create an wage-earner services account

If you haven’t already, you need to create an wage-earner services account.

This lets you supervise Making Tax Digital on behalf of your clients (including both MTD for VAT and, when it arrives in 2024, MTD for Income Tax).

Before registering for an wage-earner services account, you need to register with HMRC as an agent. This is a postal using rather than an online one.

Before you can wield to be an agent, you must have registered with a supervisory authority (or HMRC) regarding anti-money laundering.

You may once have this in place via your chartered soul (ACCA, AAT, CIMA, etc).

Step 4: Link existing VAT clients to your wage-earner services account/sign up your existing VAT clients for MTD

If your vendee has once authorised you to file VAT Returns on their behalf surpassing MTD for VAT, you need to reprinting them to your wage-earner services account.

This can be washed-up within the wage-earner services worth itself by selecting the option.

If the vendee is new to VAT, you’ll need to sign them up. You need their VAT certificate, contact details, Unique Taxpayer Reference (UTR), National Insurance number, visitor registration number, and other info.

Step 5: Ask new clients to sign up to Making Tax Digital

Your vendee can sign up to MTD for VAT by themselves.

Assuming you’ve been filing VAT Returns for them already, you should automatically get a confirmatory email when this happens.

This will include instructions on subtracting them to your wage-earner services account.

Step 6: Ask new clients to authorise you in order to link new clients

If a vendee has once signed up for MTD for VAT, perhaps surpassing your involvement with them, you can use the wage-earner services worth to ask them to authorise you.

This creates an authorisation request (a web link) that you then email to your client.

But you should take superintendency considering the link is time-limited and will elapse if they don’t respond soon.

Registering for MTD for VAT as a business

Here’s everything you need to know well-nigh how to register for MTD for VAT if you’re a sole trader, individual, incorporated business, or any other type of entity.

How to register your merchantry for MTD for VAT in 4 steps

Step 1:

The registration process involves logging in with the Government Gateway worth for your business.

You might have used this previously when filing VAT Returns via the portal website.

If you don’t have an account, you can create create one (you need an email write to do so).

Step 2:

To register for MTD for VAT with HMRC, among other things, you need to input the pursuit information when requested (some of this can be found on your VAT registration certificate, so have it to hand):

• Your Government Gateway ID and password
• Your company’s VAT number
• The stage your merchantry became VAT registered
• The Box 5 value from your most recent VAT Return (the value of your last VAT Return).

Step 3:

Once you’ve inputted the whilom details, HMRC will immediately verify them. If you’ve made any errors, you can input the details again.

The verification message from HMRC that says your merchantry can start submitting VAT Returns via MTD for VAT might take up to 72 hours – you shouldn’t submit your VAT Return until you receive this confirmation.

Step 4:

Once you’re signed up to MTD for VAT, you need to vivify the full-length within your written software using the details provided by HMRC.

This is likely to be an ‘Enable MTD’, ‘Authenticate’ or similar option that’s located somewhere in the settings, options or full-length menu area.

Speak to your software vendor well-nigh how to do this.

How to create and submit an MTD for VAT Return

Once you’ve registered, when your VAT Return stage comes around, you need to file it via your business’s written software or bridging software.

You can file VAT Returns in various written software packages—generally, you should squint for an option to create a VAT report or return, or something similar, within it.

Suppose you’ve used the written software to record your VAT written over the previous period.

The report should be generated automatically—although don’t forget to enter any adjustments. Then you’ll probably need to tell the software to start submitting using the MTD process.

Creating and submitting an MTD for VAT Return using Sage Accounting

Here are the steps required to submit a Making Tax Digital for VAT Return using Sage Accounting:

1. While viewing your written summary, click the Reporting heading, and then click VAT returns.
2. Click the undecorous Create VAT return button.
3. Your dates are set automatically based on HMRC’s reporting requirements for your business. All you need to do is click the Calculate button.
4. Once the calculations are well-constructed and the figures are displayed, you might need to make adjustments. To do so, click the Adjust link slantingly whichever value needs to be adjusted.
5. It’s moreover possible to click the Detailed Report sawed-off to see increasingly info well-nigh the return, and you can create a nonflexible reprinting of the return by clicking the Print button. However, neither of these are necessary to file the return.
6. Assuming you’re happy with the values shown in the VAT Return, click the Submit Online to HMRC option, and then click Save.
7. A dialogue box will towards asking you if you’re sure you’re happy with the return. Click the Finalise and Submit sawed-off to well-constructed the submission.
8. You’ll be shown the VAT Return List, which shows the return and a unenduring status message well-nigh how it’s progressing. You can view this list in future by repeating Step 2 above.

Final thoughts on Making Tax Digital for VAT

Those who are signing up for Making Tax Digital for VAT from April 2022 onwards will have both a potentially easier and increasingly difficult time than those who signed up when in April 2019.

It’s easier considering the likes of accountants and tax tutors who may be supporting them have had two years of wits to guide the process.

Any problems that HMRC might have experienced in those early days had long since been ironed out.

However, they haven’t got the soft-landing period that eased the rules on digital linking.

But again, with support from the same experts, plus HMRC and written software providers, help is misogynist to tackle any challenges.

And for accountants, when it comes to dealing with Making Tax Digital, you can use automation—learn how it can save you time and money with our ROI calculator.

Editor’s note: This vendible was first published in April 2019 and has been updated for relevance.

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