Tackling three questions small businesses may have around MTD for VAT

posted in Uncategorized

In the UK, as the weather (slightly) warms up with spring approaching, small business owners can look ahead to the coming months with a sense of optimism that may have been missing over the past two years. The future looks brighter as lockdowns end and restrictions ease.

Some small businesses, however, may be less enthusiastic, with trepidation around the upcoming Making Tax Digital (MTD) for VAT deadline, which comes into force from April 2022. It means that VAT-registered businesses with taxable turnover under £85,000 that are submitting VAT via the HMRC portal or through the post will have to maintain records digitally and file through MTD-compatible software.

While this might sound daunting, the transition to digital tax returns doesn’t have to be. Instead, it can be used as an opportunity to accelerate digital transformation, driving significant benefits for your business and your customers. That said, it’s still understandable if you have questions about the next deadline, and how you can ensure compliance.

Here, we tackle three questions small business owners may have about MTD for VAT.

What records do businesses need to keep digitally for MTD?

For small business owners, it’s perfectly understandable to feel overwhelmed by MTD for VAT. With plenty already on your plates, changing how you submit VAT returns may feel like an additional headache. Thankfully, not every aspect of this process is set to change.

In fact, the records you need to keep for your VAT return will remain the same – it’s only where and how these records are stored that have changed.

So, for every item, you’ll need to record:

The time of supply
The value of supply
The tax rate

For a comprehensive list of every record that needs to be kept digitally, HMRC has you covered.

How do I file a MTD VAT return?

Now that we’ve covered which records you need to keep digitally, it’s time to answer another nuts-and-bolts MTD for VAT question – how exactly do you file an MTD VAT return?

It can be extremely straightforward. HMRC-approved accounting software, like Xero, has an MTD for VAT function, which you’ll need to use to submit your return.

Otherwise, if you still use spreadsheets for record-keeping, you can use bridging software to file your return, even if this may add wrinkles of complexity. MTD requires digital links so that information can transfer between different software. This is what a bridging software does, acting as a (you guessed it) bridge between them.

This transfer must be digital, however, and you can’t copy and paste records from one platform to another. This means you’ll need to use spreadsheet formulas to create digital links and ensure compliance with MTD for VAT.

What are the benefits of MTD for businesses?

While it’s important to acknowledge that many small businesses will feel that MTD compliance is an unnecessary burden, this shouldn’t overshadow the fact that MTD for VAT, and the push to digitalise, can be extremely beneficial.

By turning to accounting software to automate processes and submit your VAT return, you can save time, improve the accuracy of your accounts and help you to get your taxes right. In fact, research by HMRC on MTD for VAT found that current participants are already feeling more confident about filing their returns under the new rules. Small business owners can enjoy a host of additional benefits, too, including:

Fewer reporting errors
Less time spent on paperwork
Reliable record keeping
Faster returns filing
Better collaboration with your accountant
Real-time overview of business performance and cash flow

If you have more questions about MTD for VAT, you can also turn to our comprehensive FAQs, or some of our other helpful resources, to ensure you’re all set for compliance, and to make the most of the opportunity it represents.

The post Tackling three questions small businesses may have around MTD for VAT appeared first on Xero Blog.