Making Tax Digital VAT returns – How to make sure you comply

Is your business registered for VAT? If it is, read on. The government’s new Making Tax Digital regulations have transformed the VAT system, and you need to know how this affects you.

Making Tax Digital is here

From April 2022, all VAT-registered businesses - regardless of their taxable turnover - will need to follow MTD rules for their tax returns. HMRC is entering the digital age big time, but most importantly they’re starting with VAT. So if you haven’t yet prepared for the changes, now is the time to get your head around your obligations, and how these have changed.

So where do I start?

Set up an online VAT account. As soon as possible. 

You can register online with HMRC to submit your VAT returns through your Government Gateway account. Once you’ve signed up to MTD, you’ll find it helps you stay organised as you need to record all your VAT transactions digitally throughout the year.

MTD-compliant software

Next up, you need to make sure your accounting software is MTD-compliant. “Functional compatible software” is accounting software that can connect directly with HMRC when you submit your return. 

You might already be using suitable Making Tax Digital software, like QuickBooks, in which case you’re all set. QuickBooks works out how much tax you owe and reminds you when your VAT return is due. It even calculates VAT-related expenses that you can claim back. And - most importantly - it’s approved by HMRC for submitting VAT returns directly under MTD.

If you get a VAT inspection - which is actually quite likely -  all the information is there in one place, so you don’t need to do any extra work. “Being digital” will also help you steer clear of penalties for late submissions and non-payments, which can be quite substantial, and increasingly so for serial defaults or inaccuracies.

Submitting your VAT return digitally

If you’re using QuickBooks, you’ll save so much time as it does most of the work for you. It tells you what your VAT liability is for the accounting period, and all you have to do is click a button to submit your return via a digital link. It’s that simple.

What if I don’t use QuickBooks?

Maybe you still use Excel for accounting – if so, you’re not alone, and we know it’s hard to let go of a method you’ve come to trust over the years. However, even if you use Excel to keep track of your finances, you’ll still need to submit your VAT return according to MTD rules by April 2022 at the latest.

If you wait until the last minute, you’ll have to import all your data retroactively. If you invest in a MTD-compatible software now, it will track your data throughout the year, making your 2022 tax return as easy as clicking a mouse.

Switching to MTD software sounds complicated!

If you’re not confident moving forward with the new MTD rules and regulations on your own, don’t worry. Things can seem tricky if it’s your first time filing. This is where an accountant can be worth their weight in gold. With professional help on board, you’re free from all the worry of compliance, deadlines, and potential errors when you come to submit your returns. 

Find a fully accredited accountant or bookkeeper near you today.

Cloud accounting

With digital accounting software now being the norm, accountants have more time to help you grow your business. Just make sure you choose a professional who’s already embraced digital accounting solutions like QuickBooks. It’s the way to go.

What if submitting my VAT return doesn’t go to plan?

Don’t worry, HMRC understands that mistakes happen. However, it’s expected you take “reasonable care” over your return, or face penalties if it’s found that your errors to have been careless or deliberate.

It’s important to know what to do when things go wrong to avoid hefty fines. The main thing to remember is, so long as you act immediately to put things right, you’ll minimise any penalties you might face.

You can seek HMRC’s advice directly when things go wrong, by calling 0300 200 3700. HMRC also has very helpful VAT guides for businesses.

Eliminate errors

HMRC are going digital to avoid errors and streamline your submissions. Using cloud-based accounting solutions, like QuickBooks, will be obligatory from April 2022 onwards. If all your VAT records are digitally recorded, there’s no need for manual transcription and less room for human error. And you can feel confident when submitting your VAT return.

Did you find this article about Making Tax Digital VAT returns useful? QuickBooks cover many other business-related topics on our small business blog. It’s all part of the support we offer to small business owners in the UK.