What next for MTD?
Making tax digital (MTD) is part of the government’s plans to digitise the way tax is managed. It’s been around for a while now but the next phase for VAT is rolling out from April 2022.
From April 2022, all VAT-registered businesses (even those with turnover below £85k) will need to keep digital records and submit their VAT returns using HMRC recognised software such as Xero.
From 1 April 2022 all VAT registered businesses must sign up, whatever they earn.
Currently, many businesses use spreadsheets and enter their VAT return manually via their government gateway account. The change is that manual entry will no longer be allowed under MTD.
The key is digital links
A digital link is an electronic or digital transfer or exchange of data between software programs, products or applications. In English, this means that you can no longer manually enter your VAT return into the HMRC gateway, this will have to happen in an automated way. Both cloud and bridging software can act as a solution for this. Bridging software means you could continue to use your spreadsheets and then the software would act as a “bridge” between your spreadsheet and HMRC, however there are distinct efficiency advantages of using HMRC approved software such as Xero over bridging solutions.
As a Xero partner we recommend Xero to all of our clients. Xero has some great advantages when it comes to MTD for VAT.
Increased automation: Xero will automatically generate a draft VAT return from the bookkeeping records. So, if you record all transactions correctly, and you have a simple business, you don’t need to do to any additional complicated calculations to get the VAT return sorted. You keep HMRC happy, without the stress of worrying about your submission.
Easy access to digital receipts: By using data capture technology such as Hubdoc all you need to do is upload a picture of the receipt and you’re sorted. The images live in the cloud.
If you use bridging software, you’d still have to keep the physical receipts.
Future MTD requirements: Getting your digital records ready for MTD for VAT will put you in a good position for future digital-record keeping. MTD for income tax and Corporation Tax is coming and it will become increasingly complicated for spreadsheet users, costing you more and more time going forward.
Other tools: Xero offers other tools you may require to run your business on a day-to-day basis. Tools such as invoice generation, bank reconciliation, quotes, bills and capturing bills and receipts are available within Xero along with Expenses, bill payments, a handy mobile app and payroll.
Honestly the time-saving benefits of cloud software such as Xero far outweigh the additional costs for most businesses. Its not just about the HMRC obligation. Cloud solutions aren’t just key to getting your tax right they are also to gaining better visibility on your finances and running your business better.
Our team are all Xero certified and we’re here to help you. If you need setting up on Xero for the first time we can help. If you want to rid yourself of the burden of managing your bookkeeping and VAT returns on an ongoing basis, that’s what we’re good at and what we do day in day out.
Get in touch and let’s talk about how we can reduce your stress and give you time back.
0330 1330 774
