HMRC is reminding businesses to take steps to prepare for Making Tax Digital for Value Added Tax (VAT) before it becomes mandatory for all VAT-registered businesses from 1st April 2022.

What is Making Tax Digital?

Making Tax Digital (MTD) is part of the government’s overall initiative to implement a fully digital tax system in the UK. This will make it easier for individuals and businesses to get their tax right and keep on top of their affairs through a fully digital tax system.

Since April 2019 businesses with a taxable turnover above £85,000 have already been required to follow Making Tax Digital by keeping digital records and filing VAT returns using MTD compatible software.

In July 2020 HMRC announced that all VAT-registered businesses must file digitally through Making Tax Digital from April 2022 regardless of turnover.

What does this mean for me?

In order to continue filing your VAT returns from 1st April 2022 you must make sure you are using MTD complaint software and have signed up for Making Tax Digital for VAT via the HMRC website.

Choose your software

If you are already using a cloud based accounting software it is almost certain to be MTD compliant. If you are using desktop accounting software you may need to update it for MTD if your software provider has offered a solution for MTD filings. If you have very old software, it may not have been updated for MTD so you will need to consider an alternative solution to have in place in time for the deadline of April 2022. If you are using spreadsheets to keep your accounting records you will also need to look for an alternative solution before 1st April 2022.

You can find a list of all compatible software providers on the HMRC website.

Sign up for Making Tax Digital for VAT

To sign up you need:

• your business email address

• a Government Gateway user ID and password - if you do not 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

After you’ve signed up

You should get a confirmation email from noreply@tax.service.gov.uk within 3 days of signing up. This might go to your spam folder so do remember to check in there.

Do not submit a VAT Return until you get a confirmation email and do contact HMRC if you have not received the email.

What’s next?

Once you are signed up you are all set to file your first MTD VAT return using your software. This should be straightforward but do make sure you check everything through before filing, especially if you are a new user of the software.

If you have signed up for MTD and changed your software part way through your accounting year this may be more complicated as you will need to make sure your previous accounting data is correctly brought into your new software so your have a full years data at the end of your accounting year.

This can be complicated if you have not done this before and you are learning a new piece of software so do refer to your accountant for help to do this.

If you don’t have an accountant now may be the time to find one. Investment into getting new processes right for your business at the start will avoid making errors which may cost you more time and money to rectify later.