All VAT registered businesses must use MTD compliant software from April


March 5, 2022|In KRW Tax news|By Keith Witchell

OK, so this isn’t exactly breaking news, and we’ve been speaking to affected clients about it for months, but from April 2022 all VAT registered businesses must use MTD compliant software.

Businesses with an annual turnover over £85,000 have been required to register for Making Tax Digital (MTD) since April 2019, which involves them using HMRC approved MTD compliant software, such as Xero, Quickbooks, Free Agent and Sage, to submit their VAT returns.

However, until now, smaller VAT registered businesses were able to continue submitting VAT returns through the HMRC website.  That all changes next month though, when all VAT registered businesses are required to register for MTD and submit their returns using MTD compliant software.

Regular readers will know that at KRW we’ve been banging the Xero drum for years, and we remain one of the only accountancy practices to offer free support and initial training on Xero.  Its fantastic software that saves time compared to using spreadsheets for your books and records, as it links to your bank account and avoids all transactions needing to be keyed in, which also reduces errors.  We have over 300 clients on Xero and most comment that they wished they’d started using it sooner!

There are other software options available too, but they all carry a monthly cost, which is why some smaller businesses have stuck to spreadsheets or manual records.  Unfortunately, though, that is no longer an option and all VAT registered businesses must submit their VAT returns for VAT quarters commencing on or after 1 April 2022 under MTD.  When this kicks in depends on your VAT quarter dates but for many this will be for their quarter ending 30  June 2022, with others being for the quarters ending 31 July 2022, and 31 August 2022 respectively.  This means that by 7 October all VAT registered businesses will have to file their VAT returns under MTD.

We’ve been in touch with all clients that we believe will be affected and offered some options to help them through this transition, and our team are always on hand to assist.

Is there any way around MTD for these businesses?  Yes, there is!  Some businesses have decided to de-register for VAT as the extra compliance burden/cost outweighs the benefit of remaining VAT registered.  We are happy to help any clients with de-registering for VAT if that’s what they decide.

MTD for tax is coming though……so at some point in the not too distant future all businesses will need to use MTD compliant software to comply with tax legislation anyway.  Current plans will see self employed businesses  and landlords with incomes of over £10,000 per annum having to be MTD compliant for income tax reporting as soon as April 2024!

As mentioned above, our team are well placed to assist with these changes, so for further advice on this matter, please contact your Client Manager.

Key Facts

  • All VAT registered businesses must register for MTD for VAT from April 2022
  • Previously businesses with a turnover under £85k pa didn’t have to be MTD compliant
  • All VAT returns commencing on/after 1 April 2022 must be submitted using MTD
  • We can assist with transitioning to MTD compliant software, such as Xero
  • The only alternative for small businesses is to de-register for VAT, which we can help with

For further advice on this matter, please contact me.

Keith Witchell

Director