Starting from April 2022, VAT payers of all income brackets will be required to go through the Making Tax Digital system. This change affects both single-person Self Employed businesses, as well as Limited Companies and other entrepreneurs.
What is Making Tax Digital?
JMTD is a program that aims to fully digitalise tax administration. It has been introduced by the HMRC in April 2019. The first phase of this program applied only to companies with an annual turnover of more than £85,000. The second phase will come into effect in April 2022.
Additionally, in April 2024, MTD will also be applied to Income Tax payers, such as the self-employed and landlords.
The system aims to improve the VAT declaration process and reduce the amount of miscalculations. It will also offer users a greater insight and control over their own account books, making it easier for them to manage their companies. The online account will also give access to all taxation information on a single interface. All in all, MTD is supposed to make things faster and easier for taxpayers.
How can you prepare for the changes?
1. You need digital accounting software.
If you have been calculating your accounts in Excel or on paper, you need to look for some suitable accounting software. Alternatively, spreadsheets can still be used, but a special program that connects the two will be required to facilitate for data transfer directly to the HMRC. However, it is worthwhile to consider investing into some good accounting software, or reaching out for help to an accountant, who can provide such services
Information that needs to be submitted to the system includes:
- The company name
- The address at which the company is registered
- The VAT number
- e way of paying VAT (directly at a bank etc.)
All transactions must be registered in an electronic format. All invoices should be registered, dated and contain the amount due as both gross and net. The question arises: do I have to scan my invoices to store them in a digital format? The answer is no, but it can be done, depending on personal preference. Documents should be stored for up to 6 years.
You will find a list of software approved by the HMRC here:
https://www.tax.service.gov.uk/making-tax-digital-software
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2. Register your business for MTD, find the link below:
https://www.tax.service.gov.uk/vat-through-software/sign-up/are-you-ready-to-submit
To register, you will need.:
- Your Government Gateway username and password
- Your VAT number and the last filed declaration
- Your UTR number and your Company Registration Number/ National Insurance Number if self-employed
If your company is registered as a voluntary VAT payer, as of April 2022 you will not be able to make your VAT submissions using your Government Gateway on the HMRC website. Even if you have been using accounting software to submit your VAT declarations for some time, you are still required to register for MTD. HMRC will not do it for you automatically.
Do not leave your registration process for the last minute. Doing it earlier will allow you to address any problems, should they arise.
You may ask, what will happen if I don’t adhere to the MTD laws? Starting from April 2022, the HMRC will introduce a new system of penalisation. Fines will be imposed for both late payments, as well as for late VAT declaration submissions. This subject will be addressed in the next blog article.
