Making Tax Digital – VAT compliance

Over the last 3 years HMRC have started implementing their Making Tax Digital (MTD) VAT requirements, the gradual introduction has now concluded. Since the 1^st of April 2022, it is a legal requirement for all VAT returns to be sent digitally and direct from software that provides a digital link for sales & purchases from sales system to return. If your business is not compliant, it is key to plan for changing this.

Although there is still a possibility to request an exemption, these are given on a case-by-case basis and will be difficult to obtain. For instance, objecting to using computers on religious grounds, may be – and only if agreed - one of the extremely limited potential reasons to be excused.

Not only will the digital return provide benefits for HMRC as it aims to reduce the VAT gap - designed to mitigate the amount of tax lost to avoidable errors - but also allows businesses to make it easier to get their VAT calculations right.

HMRC allows bridging software, effectively a plug in that enables you to link spreadsheets to HMRC systems. Although this means your business is compliant, it might not bring the benefits of a comprehensive software package.

How can you ensure your business is MTD compliant?

1. Make certain your sales and purchases are recorded digitally before you sign up for MTD VAT
2. If you are not currently recording this digitally, research which way works best for your business. Benefits of a good software are the following:

• Correctly records sales & purchases VAT, and retail purchase and sales documentation digitally
• Provides a digital link between systems, for example if sales are recorded in a system separate to your accounting software
• Flags duplicate invoices, which prevent overpayments

3. Validate your system postings, ensuring that when you start with MTD returns you will not have to post regular adjustments prior to return submission
4. Sign up to Making Tax digital for VAT

If you are using an agent for your VAT return, ensure that they are informed about any changes in the process so that they can help and guide you in the right direction.

If you are reviewing your systems and are thinking about changing or updating your accounting software, we have a wide range of options suitable to every business need and size. You may also wish to consider outsourcing various elements within your finance function. Armstrong Watson can take care of a range of processes, including a virtual finance department that functions as a one-stop-shop for business.