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Update MTD for VAT: What Businesses Need to Know

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From Tuesday 1 November 2022, a business will no longer be able to use their existing VAT online account to file their quarterly or monthly VAT returns.  

Update for making tax digital for VAT

This means that by law, VAT-registered businesses must now sign up to Making Tax Digital (MTD) and use MTD-compatible software to keep their VAT records and file their VAT returns. 

In this blog post, we’ll cover what businesses need to know about Making Tax Digital for Value-Added Tax, including how to sign up and what software is compatible. 

What is Making Tax Digital?

Making Tax Digital (MTD) is a Government initiative that requires businesses to keep digital records of their transactions and submit them to HMRC through MTD-compatible software.

The aim of MTD is to make it easier and quicker for businesses to get their tax right the first time, while also reducing the administrative burden on HMRC. 

What does this mean for businesses? 

From 1 November 2022, businesses will no longer be able to use their existing VAT online account to file their quarterly or monthly VAT returns. Instead, they will need to sign up for Making Tax Digital for Value Added Tax and use MTD-compatible software.

Businesses that file annual VAT returns will still be able to use their VAT online account until 15 May 2023, but after that, they will also need to sign up for MTD for VAT and use MTD-compatible software.

If businesses do not sign up for MTD and file their VAT returns through MTD-compatible software, they may have to pay a penalty. The best way for businesses to avoid penalties is to use MTD now. 

Even if a company already use MTD-compatible software, they need to ensure that VAT returns are submitted through the software and not using the online account.

Getting started with MTD for VAT 

The first step is for businesses to register for an Online Services account with HMRC. Once they have done this, they can sign up for MTD for VAT through their Online Services account.

Once they have registered and signed up for MTD for VAT, businesses will need to find software that is compatible with the requirements of the scheme. A full list of compatible software can be found on the Government website. This list includes both free and paid-for options, so there should be something to suit every business’ needs and budget. 

Recommended Software

Xero

Xero accounting software is the top provider in the UK for small businesses. The software is easy to use and provides many features to help businesses manage their finances.

Update MTD for VAT: What Businesses Need to Know

Xero features include:

  • Easy invoicing solution
  • Mobile application
  • Bank feed
  • Online payment solutions – to get paid faster
  • MTD Compliant
  • Bank Reconciliations

One of the key advantages of using Xero is that it integrates with a wide range of other software applications, making it easy to manage all aspects of your business from one platform. Another advantage is that Xero offers a free trial to try out the software before committing to a subscription.

This means that you can be sure that Xero is the right accounting solution for your business before making any long-term financial commitment.

FreshBooks

Freshbooks accounting software is a cloud-based solution that helps businesses manage their finances.

The software is easy to use and offers a variety of features, making it a popular choice for small businesses. Freshbooks also offers excellent customer support, which is why many businesses choose it over other accounting software solutions.

 

FreshBooks Features include:

  • Time Tracking
  • Expense management
  • Projects
  • Easy Invoicing
  • Online payment solutions
  • Mobile Application

Freshbooks offers a free trial, so businesses can try the software before committing to a subscription. This makes Freshbooks an affordable option for businesses of all sizes.

Zoho Books – Free Plan

Zoho Books is a cloud-based accounting software that integrates with over 40 other Zoho apps.

It offers a free plan for businesses with less than £35,000 revenue. The free plan includes basic features such as invoicing, expense tracking, and bill payment. It also allows businesses to connect to their bank accounts and track their financial health.

For businesses that need more than the free plan offers, Zoho Books has further paid plans that offer additional features such as project management, time tracking, and bank feeds.

Zoho Books Free plan features include:

  • Importing bank statements
  • Invoicing up to 1000 per annum
  • Mileage tracking
  • VAT for MTD

Regardless of which plan you choose, Zoho Books makes it easy to manage your finances and get a clear picture of your business’s financial health.

Conclusion 

As the 1 November 2022 deadline approaches, it’s important that small businesses are aware of the changes coming into effect regarding Making Tax Digital for Value Added Tax. By using MTD-compatible software, businesses can avoid paying penalties.

There are many different software options available, so small businesses should take the time to find one that suits their needs and budget. The sooner they act, the better!

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