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Are you submitting your VAT returns manually?
3rd March 2022
In April 2019 Making Tax Digital (MTD) came in to force for all businesses that were compulsory registered for VAT. MTD was one of the most fundamental changes to the administration of the tax system for at least 20 years. From April 2022 the MTD legislation will apply to all VAT registered businesses and organisations in respect of the records maintained and the method of filing VAT returns. At a later date MTD will expand further to require additional reporting for other taxes such as income tax.
The essential elements of the MTD legislation are:
- Paper records will no longer be sufficient: It will become mandatory for all VAT registered businesses and organisations to use software or a spreadsheet to keep accounting records. Paper accounting records will cease to meet the requirements of tax law.
- Quarterly reporting: There will be a requirement to submit updates to HMRC each quarter directly from accounting software, within one month of the end of each quarter.
As your accountants we will support you through these changes and provide the ongoing services that you need. However, the changes are so fundamental that it will be necessary to review your current record keeping systems and to reconsider what work you decide to do yourself and which activities you wish to include in the service we provide.
When does it start?
VAT: As your business is registered for VAT you will be required to keep digital accounting records and to file your VAT returns using MTD compliant software from April 2022 (the first VAT quarter starting on or after 1 April 2022). The current online VAT return will not meet the requirements.
Income Tax (self-employed, partnerships, trusts and landlords who compete self assessment tax returns): MTD is expected to become mandatory for income tax reporting from April 2024.
Corporation Tax (limited companies): The timings for MTD for corporation tax have yet to be confirmed.
What are the exemptions?
- There are exemptions for those who are not able to engage digitally for religious reasons or due to a factor such as age, disability or location (eg, no availability of broadband). These exemptions are the same as the current exemptions for VAT online filing.
- When MTD for income tax becomes mandatory there will be an exemption for businesses and landlords with a very small turnover; the level of this exemption has not been set.
What do I need to do now?
We need to discuss your transition to MTD with you so that you are ready for MTD reporting for VAT by Spring 2022 and also consider the transition for other taxes.
- We may need to consider the possibility of a digital exclusion exemption.
- If you currently use accounting software it may need to be upgraded. If you are considering acquiring software, please discuss this with us first.
- If you currently maintain records on a spreadsheet you will need to acquire software which will allow returns and updates to be made directly from the spreadsheets, or engage us to do this work.
- If you currently maintain records on paper your processes will need to change. We can advise and provide appropriate software to keep your accounting records on or assist in the bookkeeping of your business on your behalf. Please discuss the options with us as soon as you can.
Where can I get further information about these changes?
We would be pleased to discuss the options available to you regarding MTD, therefore please contact us by email or telephone the office on 0116 2827000 for more advice and assistance.
You can also find out further information following the below links:
https://www.gov.uk/government/publications/making-tax-digital