Have you received a letter from HMRC regarding VAT Making Tax Digital? If so, you are not alone.
Making Tax Digital (MTD) for VAT letters are being distributed by HMRC to eligible VAT-registered firms.
This is to notify them that the manner in which VAT records are kept and VAT returns are submitted has changed, and that they must begin following MTD for VAT.
However, just because your company hasn't received a letter doesn't mean it won't.
Read on to learn about the benefits of Making Tax Digital, what the letters from HMRC imply for you, and what steps you should do next.
Why would Making Tax Digital Benefit Your Business?
Making Tax Digital is one of the most significant improvements to UK businesses in recent history.
It not only helps to avoid errors while dealing with business administration, but it also increases productivity for your firm.
Spending less time on administration allows you to focus on your business, businesses can save an average of £17,000/27.6 days per year by switching to digital accounting.
Why did HMRC send a notice to my company?
If HMRC has sent you one of the MTD for VAT letters, it means you need to start maintaining digital records and modify the way you submit your VAT.
The letters' contents outline a sequence of steps that must be completed in order for your firm to comply with the MTD for VAT standards.
According to one of HMRC's emails, "all VAT-registered businesses, regardless of taxable revenue, will be required to begin using MTD for VAT return periods beginning on or after 1 April 2022."
What do the letters (as well as Making Tax Digital) imply for me?
It means that, as of April 1, 2022, the method all VAT-registered firms store records and file VAT returns has changed.
HMRC now requires your company to retain digital records, and VAT data must be submitted using MTD compatible software or bridge software.
What if I haven't gotten a letter from HMRC?
HMRC will be sending out additional letters to businesses, so if your company is VAT registered and has not yet signed up for MTD for VAT, you may receive one.
However, you do not need to wait for a letter from HMRC to begin using MTD for VAT; you may sign up for it right now.
What do the Making Tax Digital letters from HMRC say?
The letters begin by informing you that you must take action in order to prepare for Making Tax Digital.
They argue that regardless of taxable revenue, all VAT-registered enterprises must sign up for MTD for VAT.
They then go over a number of measures you should take (detailed in the letters):
MTD compliant software or bridge software is required.
To maintain your digital records, you must use your programme.
You should visit the Gov.uk website to sign up for MTD for VAT.
You must first enable your software to work with MTD before you can begin submitting VAT returns using MTD.
The letters also warn that if you do not begin utilising MTD for VAT returns by your first MTD for VAT return date (your exact deadline should be on your letter), you may be penalised.
There's also a mention of MTD exclusions (find out more at Gov.uk) and a reminder that if you use an accountant or agent to assist you handle your business taxes, they can help you transition to MTD for VAT.
Important dates to remember
Making Tax Digital is required for all VAT-registered enterprises as of April 1, 2022, but what other dates should you be aware of?
That is dependent on whether your first full VAT period begins on or after this date.
If your company uses the regular quarterly VAT accounting periods, you must retain digital records and submit your VAT Return via MTD beginning on the following dates:
If the previous VAT quarter concluded on March 31, 2022, the next VAT quarter will begin on April 1, 2022.
If the previous VAT quarter ended on April 30, 2022.
If the previous VAT quarter ended on May 31, 2022.
The same principle applies to monthly and annual VAT accounting periods, so keep your first full VAT accounting period in mind.
And, because VAT Returns must still be filed by one calendar month and seven days, at the latest, the initial VAT Returns for MTD for VAT must be filed by the following dates:
7 August 2022 for a VAT quarter that begins 1 April 2022.
7 September 2022 for a VAT quarter that begins 1 May 2022.
7 October 2022 for a VAT quarter that begins 1 June 2022.
There are additional registration deadlines for MTD for VAT to keep in mind.
If you already pay by Direct Debit, don't join up too close to the due date of your VAT Return, or you'll be charged twice.
To avoid this, don't sign up for anything less than:
Seven days before the deadline for your return
Five days after the deadline for your return
If you don't pay by Direct Debit, sign up at least three days before the due date for your VAT Return.
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