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Everything you need to know about Making Tax Digital (MTD) for VAT with QuickBooks Online

We'll cover everything from the latest Making Tax Digital changes and how it affects your business to step-by-step guides and frequently asked questions, so you can be MTD ready without breaking a sweat.

What is Making Tax Digital?

Making Tax Digital is HMRC’s initiative to transform the UK tax system and move it online. Think of it as switching from spreadsheets and paper records to a new digital system.

Since April 2021, VAT-registered businesses have had to keep digital records with the help of 'functional compatible software' that can connect directly to HMRC. This means HMRC will only accept VAT returns sent using MTD-compliant software, like QuickBooks.

What's changing?

Initially, MTD rules have only applied to businesses with a VAT taxable turnover above the £85,000 threshold. But the government plans to roll out this digital transformation further. These are the current deadlines for MTD:

April 2021The option to submit VAT returns the old way has been removed from the HMRC website
April 2022MTD applies to all VAT-registered businesses. Businesses will need to use MTD-compliant software that can connect directly with HMRC to submit VAT returns
April 2023MTD for Income Tax applies to self-employed businesses and landlords with annual business or property income above £10,000
April 2026MTD for Corporation Tax may come into effect for incorporated businesses and other organisations within the charge to Corporation Tax

However, submitting VAT returns digitally doesn’t automatically make you MTD compliant. In this article, we’ll show you how to sign up to MTD before enabling it in QuickBooks.

Am I affected by Making Tax Digital?

If you're a business owner with an annual taxable turnover above the £85k threshold, it's likely that you're already required to use MTD to submit your VAT returns.

If you are a business with an annual taxable turnover below the £85k threshold, you can still sign up for MTD voluntarily. Alternatively, you can submit using the HMRC service which is available in your Business Tax Accountant until you’re required to join in April 2022 – this is when all VAT registered businesses must sign up, whatever they earn.

Refer to HMRC's website which details when a company must be MTD compliant.

I submit my VAT returns online – am I not already compliant?

Just because you are submitting your VAT returns online doesn’t mean that you're MTD compliant. Until you've registered for MTD for VAT on the government website and enabled it in QuickBooks, you’ll need to log into your Business Tax Account with HMRC to manually enter your tax return numbers.

Find out what you need to comply with MTD here.

How do I sign up for MTD and submit a VAT return?

You should sign up for MTD at least one week before your filing deadline so that you are registered for the new service in good time to submit your return. After signing up you'll receive an email confirmation from HMRC containing your new MTD Government Gateway user ID and password. Then, you will need to enable and connect QuickBooks to MTD – a process known as 'authorising' which we'll show you how to do.

Before you register for MTD

In order to avoid any problems, be sure to check the following before you sign up:

  • Your company registration number and VAT scheme are entered correctly in the Account and settings section in QuickBooks
  • You have no pending or unsuccessful VAT returns (these will have amber or red icons on the VAT returns page in QuickBooks)

Note: Once you've signed up to MTD, you'll no longer be able to access the old service and will need to file all your VAT returns from that point onwards using QuickBooks.

You'll need the following

  • Your business email address
  • Your company Government Gateway user ID and password
  • Your company VAT registration number and the latest VAT return

Once you have registered

  • You will receive an email confirmation from HMRC within 48 to 72 hours containing your new MTD Government Gateway user ID and password
  • Keep note of your new MTD Government Gateway user ID and password as you will need this to reauthorise QuickBooks every 18 months as part of the GDPR rules
  1. Sign up for MTD on the HMRC website.
  2. Set up VAT in QuickBooks (if you haven't already)
  3. Enable and authorise QuickBooks to interact with HMRC.
  4. Use the VAT error checker to scan your VAT return for errors before you submit to HMRC.
  5. Submit your VAT return. You can also watch this short video that will show you how it’s done:

Note: If you need to adjust any figures on your VAT return, this article will show you how plus key things to remember before you make a submission to HMRC. If you aren’t sure about making an adjustment on a VAT return, we recommend you speak to your accountant.

6. If you've been using spreadsheets (like Excel) to record all your income and expenses, submit a VAT return through bridging software. You can also watch this short video that will show you how it’s done:

7. (Optional) Mark your VAT return as filed in QuickBooks. You can then close the books to protect transactions entered in the quarter you just filed.

Watch a webinar

If you need to see how it's done in detail we’ve filmed a helpful video for QuickBooks customers. This webinar shows you all the steps you need to take. From signing up on the HMRC website to submitting an MTD-compliant VAT return.

Need more help?

*QuickBooks MTD software currently supports Standard, Cash and Flat Rate schemes. QuickBooks Bridging Software supports Standard and Cash schemes. Annual submissions are not currently supported but will be coming soon. Businesses whose home currency is not GBP are currently not supported for MTD.

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