MTD FOR VAT CHANGES: WHAT YOU AND YOUR CLIENTS NEED TO KNOW AHEAD OF 01 APRIL 2022

All VAT-registered businesses – regardless of their turnover – must comply with Making Tax Digital (MTD) for VAT rules from 1 April 2022. If you haven’t already done so and you’re VAT-registered, you need to take steps to comply with MTD for VAT requirements.

Ahead of the April deadline, you’ll also need to ensure compliance if you look after your clients’ VAT record keeping and reporting, of course. You might not look after their VAT affairs, but want to ensure that they know about the deadline, so that they can get ready and ensure a smooth transition. AIA strategic partner, GoSimpleTax have produced a guide which is intended to help you achieve all of the above.

Here’s what we’ll cover

• What is MTD and why is it being introduced.
• The main changes that MTD for VAT will bring.
• How agents can help their clients with MTD for VAT.
• Where you can find out more about MTD and VAT.

What is MTD and why is it being introduced?

Already underway, as you may already know, Making Tax Digital (MTD) is a huge government initiative that seeks to make it easier for people and businesses to “get their tax right” and “stay on top of their tax affairs”, according to HMRC. MTD is being phased in over several years.

HMRC believes that using digital record-keeping software and apps can help to prevent businesses from making avoidable tax mistakes, which are estimated to cost the Exchequer almost £10bn a year in lost revenue. MTD is bringing great changes to the way people and businesses keep financial records and report tax data to HMRC, which will apply to VAT, Corporation Tax and Income Tax when MTD is introduced completely.

The first phase of Making Tax Digital for VAT began on 1 April 2019, but it applied only to VAT-registered businesses with a taxable turnover above the VAT threshold (£85,000).

Which businesses will be affected?

From 1 April 2022, all VAT-registered businesses, regardless of their turnover, must comply with Making Tax Digital for VAT rules, which includes many sole traders (ie self-employed people), members of ordinary partnerships, landlords and limited companies.

Many with a taxable turnover below the VAT threshold (£85k) register voluntarily, so that they can reclaim VAT on purchases. Up until now, they haven’t been required to comply with MTD requirements for their VAT record-keeping and reporting. Soon they’ll have to and that will affect some 1.1m VAT-registered businesses with a taxable turnover below the VAT threshold.

According to HMRC, about a quarter of VAT-registered businesses with taxable turnover below the VAT threshold have already voluntarily chosen to join MTD for VAT.

Need to know!

• Introduction of Making Tax Digital for Income Tax has been put back until April 2024, with the government citing the pandemic as a key reason.

MTD for VAT: what changes will it bring?

Under Making Tax Digital for VAT, businesses must keep digital VAT records and use third-party software to submit their VAT returns to HMRC. That means those that don’t already keep their records digitally will need to start doing so from 1 April 2022.

According to HMRC: “The process of then sending returns to HMRC will become more straightforward, with returns generated and sent directly from the software they are using to keep their records.”

The software businesses choose to use must be capable of receiving information from HMRC digitally via HMRC’s Application Programming Interface (API) platform.

Need to know!

• Those affected by the 1 April 2022 MTD for VAT changes are advised to take steps to become compliant as soon as possible, so they can iron out any issues and get everything up and running smoothly before the April deadline.

How agents should get ready for MTD for VAT

If you’re an accountant, financial adviser or wealth management consultant with clients affected by the Making Tax Digital for VAT changes from 1 April 2022, here’s how to get ready, if you haven’t already done so. 

1. Make sure you use MTD-compliant software

• Visit government website GOV.uk to search for softwarethat is Making Tax Digital for VAT compliant.

2. Create an agent services account

• Once again, you visit GOV.uk to create an agent services account, which is different to your HMRC online services for agents account. You can use your agent services account to copy across your existing VAT client authorisations from your HMRC online services account. You’ll need to input your Government Gateway user ID.

3. Sign up your VAT clients for Making Tax Digital

• Sign up your clientsfor Making Tax Digital for VAT, after which you’ll be able to manage your client’s details online. To sign up, you’ll need your client’s VAT certificate (you’ll also need to know their business entity type, contact details and business email address). If they’re a sole trader, you’ll also need their National Insurance number. You’ll need other information (eg their UTR) for clients that are limited companies or limited liability or ordinary partnerships. 

4. Get all new clients to sign up to Making Tax Digital

• If you want to act for a new client, ones you haven’t copied across in step 3, they must sign up to Making Tax Digital so they can authorise you (you can’t do this for them). First you must sign into your agent services account then select “Ask a client to authorise you”. You then create an authorisation request, which appears as a link that you can send to your prospective new client. They must have signed up to MTD for VAT and use the link to reply to your request before it expires.

5. Authorise your software

• You can only send VAT returns digitally if you’ve authorised your software. If you don’t know how to authorise your software, contact your software supplier for guidance.

More information

Government website GOV.uk features a wealth of information for both agents and businesses on Making Tax Digital for VAT. You can watch videos and register for free webinars to learn more about Making Income Tax and VAT, whether you’re an agent or business.

Further Advice

If you require further advice on tax related matters go to the AIA Tax Insights Page, or alternatively visit the AIA GoSimpleTax Partner Page.