If your business is VAT registered, you are already inside the Making Tax Digital system. Here is what that means in everyday language.
Making Tax Digital for VAT is HMRC's way of moving VAT into the digital age. Since April 2022 it applies to all VAT registered businesses, whatever their turnover. The idea is simple: keep your VAT records digitally and send your returns straight from software rather than typing numbers into the HMRC website by hand.
Most businesses send a VAT return every three months. The return summarises the VAT you have charged customers and the VAT you have paid on purchases, and the difference is what you pay to, or reclaim from, HMRC.
The right cloud software makes MTD for VAT genuinely easy. It records your invoices and expenses as you go, works out the VAT automatically and files the return at the click of a button. Get the setup right once and it largely looks after itself.
Making Tax Digital for VAT now applies to every VAT registered business, whatever its turnover. It has been compulsory for all VAT registered businesses since April 2022, so if you charge VAT you are almost certainly within the rules and must follow them for every return.
There are two main duties. First, you must keep your VAT records digitally rather than on paper or in a basic spreadsheet on its own. Second, you must send your VAT returns to HMRC through compatible software, not by typing the figures into the old HMRC website. The link between your records and your return must be digital the whole way through, which is often called digital linking.
Most of the well known cloud packages are compatible, including Xero, QuickBooks and Sage, and they make the quarterly return almost automatic once your bookkeeping is up to date. If you prefer to keep your records in a spreadsheet, you can still comply by using bridging software, which connects the spreadsheet to HMRC. We can set any of these up for you and show you how to use them.
Late VAT returns are now dealt with under a points based system. You get a penalty point each time a return is late, and once you reach the threshold for how often you file you are charged a fixed penalty of 200 pounds, with a further 200 pounds for each later late return until you bring everything up to date. Paying late is penalised separately, with charges that grow the longer the tax is outstanding, plus interest. Filing and paying on time is the only way to avoid them.
Book a free call back and let us handle your VAT from start to finish, accurately and on time, every quarter.