MTD for VAT: How to guide your clients today

Written by

Parth Shah

Starting from April 1, 2022, MTD for VAT will start applying to voluntary VAT registrations by organisations earning taxable income up to £85,000. HMRC has stated one of the objectives behind this amendment is to address the tax gap caused by errors and careless mistakes.

Even though that means stringent digital record-keeping for businesses, it does have positive implications for keeping returns accurate and boosting productivity. It also means that accountants need to take extra care when handling their clients’ books.

Once you are done filing Self Assessment tax returns for your clients by Feb-end, help them prepare for MTD for VAT. This article discusses practical tips to help out with all the nitty-gritties related to the new VAT requirements:

1. Make sure your client is signed up

Existing businesses falling into the criteria will need to visit the UK government page ‘Sign up for Making Tax Digital for VAT’ to sign up for the new requirements. As the accountant and the agent of the company’s finances, you have the option of registering on their behalf too. Any new businesses setting up operations after April 1 will automatically be signed up if eligible.

2. Check if they can be exempted

The HMRC has laid out certain conditions under which businesses can be exempted from MTD for VAT, such as remoteness of the location where broadband access is not available, people who are digitally excluded for other reasons, or disability. These are extremely exceptional reasons.

Remember to check with the HMRC in advance whether your client is eligible. However, please note that factors like the time and cost of compliance are unlikely to be viewed as good reasons for an exemption.

3. Check which period MTD applies from

The new rules will come into effect on or after April 1, 2022. For a voluntarily registered business with periods ends of February, May, August, and November, the start date will be June 1, 2022.

For instance, if a business is registered for quarterly VAT and that period runs from June 1 to August 31, the August end data, due to be submitted by Oct 7, 2022, should be maintained and submitted digitally to HMRC.

Therefore, do the calculations accordingly for your clients and make sure everything is ready in time for them.

4. Consider VAT deregistration, if necessary

If your clients are reasonably confident that their taxable income will be less than £83,000 over the next twelve months, you can discuss deregistering them from VAT.

However, it does not necessarily exempt them from MTD as the requirement to maintain digital business records for income tax will be introduced from April 2024.

MTD for income tax applies to all businesses with gross income of more than £10,000 per annum. Lay down the pros and cons and help your client make an informed decision.

5. Keep retailer records accurate, including cash transactions

Make sure that all your retailer clients digitally record their daily gross intake of money, even if they transact in cash. They need not upload each individual transaction, just the overall totals for the day.

If the client is worried about non-compliance this way, reassure them that the HMRC will only have access to the figures recorded in the nine checkboxes of each period’s electronic VAT return and would not be looking into individual transactions.

6. Check that tax points are mentioned for non-retailer clients

According to VAT notice 700/22, all sales records for your non-retailer clients need to include the tax point for sale, VAT rate charged, and the net figure excluding the VAT amount.

All purchase invoices must mention the tax point, net expense value, and claimed input tax figure. For non-retailer clients, too, the HMRC can only access the figures mentioned in the nine checkboxes, so reassure them on that point.

7. Have bridge software for your spreadsheets

Spreadsheet accounting will be allowed under the new regulations, but make sure you have appropriate bridging software. The relevant VAT totals can be automatically linked to the figures on the electronic VAT return. There would not be any copy-pasting allowed, so give this high priority so that your clients’ spreadsheets are in order.

8. Have API-enabled software

The accounting system that your client makes use of needs to be able to digitally send and receive information to and from the HMRC through its API. If your client uses spreadsheets to manage their accounts, ensure that their bridging software is API-enabled.

9. Be ready well in time

The HMRC has clearly specified that there will be no grace period of any kind to allow clients to copy-paste figures between spreadsheets and VAT totals. So, make sure your client’s digital audit trail is complete and in place from the get-go when the laws come into force.

Over to you

With less than three months left for MTD for VAT to come into effect, we advise all accountants to have a discussion with their clients to understand how much they know about MTD in the first place. Before implementation comes education in MTD.

Getting your clients’ records sorted digitally is an added workload for you for which you may not have time as the tax deadline for filing Self Assessment has been pushed to February 28. Fret not; Stellaripe’s MTD experts can help.

We will do it all for you and more, from doing end-to-end digital record-keeping to compiling and submitting monthly/quarterly VAT returns to providing periodic business summaries and reporting.

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