Making Tax Digital compliance guide

Making Tax Digital compliance in five steps

As of April 2022, HMRC’s Making Tax Digital for VAT will apply to all businesses, regardless of turnover.

If you’re not already set up, don’t panic. Just follow these rules to make sure you’re on the right track.

1. Register for an online Government Gateway account

The Government Gateway lets you use many national and local online government services safely and securely. Once it’s set up you can use it to pay taxes, check your tax account status and receive updates and alerts from HMRC.

If you haven’t already created one, you can set up your account at www.gateway.gov.uk. Make sure you have the following info at hand:

• Your name

• Date of birth

• National Insurance number

• Email address

You’ll be asked to create a password. Once the process is complete you’ll get a user ID, which you can use to access the services you want (such as MTD for VAT).

HMRC will send you an activation code in the post and you’ll only be able to progress to the next steps once you enter the code.

2. Find out when you need to make your first MTD submission

From April 2022, all VAT-registered businesses, regardless of their income, must follow Making Tax Digital rules for their VAT returns. This means using a MTD-functional compatible accounting software that connects directly to HMRC, pulling in digital records in real-time.

There are some exceptions. You won’t have to follow the MTD rules if:

• Your business is run entirely by practising members of a religious society whose beliefs are incompatible with the regulation’s requirements (for instance, using computers is not allowed).

• You are undergoing bankruptcy procedures.

• You can’t easily use digital tools to keep your business records or submit your returns - for instance due to age, disability or remoteness of location.

If you think you meet one of these exceptions, contact the VAT Helpline to get confirmation by calling 0300 200 3700.

3. Decide if you need an accountant or bookkeeper

Accountants and bookkeepers are often just seen by business owners as a means to an end - a necessary step to make sure all tax obligations are met. But a good relationship with an accounting professional can help your business grow.

Here some questions you can ask yourself to help decide if you need an accountant or bookkeeper and, if so, which one might be right for you:

• Do they have knowledge about my industry that can help me navigate complicated tax laws and tax deductibles?

• Will I benefit from the additional services an accounting professional can bring (e.g. business insights and cashflow solutions)?

• Would I rather concentrate on the business side of things or the finances?

4. Decide how you’ll digitally record transactions

HMRC’s MTD rules state that all VAT registered businesses must “keep and preserve” their income and outgoings within “functional compatible software”. This means you need to:

• Record and store your financial records using software or apps

• Be able to send this financial data to HMRC using HMRC-recognised software or apps (in technical language, software that can link via HMRC’s API)

It’s possible to use different software to do these two things. And there’s also what’s called “bridging software”, which allows you to “bridge” programmes like Excel or Google Sheets - which are not MTD compatible - with HMRC’s platform. QuickBooks offers a bridging solution, but longer term, these routes can get complicated, so you’re better off with our all-in-one solution which is MTD compatible.

One more thing - if you have an accountant or bookkeeper, make sure they use the same accounting software as you. That way you can access the same data and reports. For example, QuickBooks for Accountants lets accountants and bookkeepers access their clients’ QuickBooks accounts to check for accuracy, view financial reports and even submit tax returns for them.

5. Practice makes perfect

Learning a new process can seem daunting, but don’t worry: submitting your quarterly VAT returns through software will soon become second nature. There are lots of advantages to managing your finances this way.

QuickBooks accounting software is MTD-compatible and a great place to start. The software:

• Records your finances digitally.

• Calculates what VAT you owe.

• Sends you reminders when your VAT return is due.

• Allows you to submit your VAT return directly to HMRC.

Here’s how to submit your VAT return through QuickBooks:

Once you’re up and running you can stop worrying about MTD and concentrate on other things - like running your business!

Did you find this article about Making Tax Digital compliance useful? The QuickBooks Blog covers many more topics. It’s all part of the support we offer to small businesses in the UK.

QuickBooks’ small business blog has got your back.