How to prepare your business for MTD | AIRPA
How to prepare your business for MTD
From 1 April 2022, new rules are coming into effect for small VAT-registered businesses as part of Making Tax Digital (MTD).
If you’re not familiar with it already, the scheme is part of the Government’s initiative to digitise the tax system.
The first mandatory stage of this took place in 2019, but this year, about a million additional businesses are being brought into the scheme.
Are you included under MTD?
Under the rules that began on 1 April 2019, businesses were only required to operate under MTD if they were registered for VAT, and their turnover was above the registration threshold of £85,000.
From 1 April 2022, this will extend to those below the turnover threshold. In other words, if your business is VAT-registered, you’ll need to start following MTD rules unless you have a special exemption.
HMRC estimates the measure will affect around 1.1 million businesses, although about a third of those in scope have already signed up for MTD voluntarily.
What do you need to do?
There are two main requirements within the legislation for MTD for VAT: keeping digital records and using compatible software to file your VAT returns.
These will apply to your first VAT return period that starts on or after 1 April. You’ll also need to register with HMRC once you’ve got your software set up.
Your accountant should be able to manage the setup on your behalf and answer any questions you have.
Keeping digital records
You’re already required by tax law to keep certain records for the purposes of VAT, but MTD makes it a requirement to keep a number of these digitally, including:
- your business name, address and VAT registration number
- any VAT accounting schemes you use
- supplies made; time of supply, value of supply and rate of VAT charged
- supplies received; time of supply, value of supply and amount of input tax you’ll claim
- reverse charge transactions.
You can find out more about your record-keeping requirements on GOV.UK.
Using compatible software
HMRC asks that businesses operating under MTD for VAT use ‘functional compatible software’ to file their returns.
This is defined as a software programme or set of software programmes, a product or set of products, or an application or set of applications.
It must be able to:
- record and preserve digital records
- provide HMRC information and returns from that data, via HMRC’s API
- receive information from HMRC using the API.
You might have software in place that can meet all these requirements already. Xero, Sage, and the other big names in the accounting software market are MTD-compatible, allowing you to store your data digitally and transfer it to HMRC within the system.
Because ‘compatible software’ can be a collection of applications, you can still operate within the rules if you’re using one piece of software to store your data, for instance, and another to send returns to HMRC.
If this is the case, you’re required to have digital links in place to transfer data from one place to the other. Manually copying and pasting it is not allowed under MTD.
Whatever app stack you go with, AIRPA is designed to connect your software, giving your small business clarity on your data and a single point of truth.
Get in touch to talk about preparing your business for MTD.