A yr after the ultimate mandate for Making Tax Digital for VAT coming into drive – with all VAT-registered companies certain to conform – what do we all know and what have we discovered?

Small Enterprise sat down with Fabiano Rocha, lead product advertising supervisor at Sage, to get his insights on what companies have to look out for now, together with key dates, potential penalties and the significance of not leaving returns to the final minute.

What has occurred since MTD for VAT was mandated to smaller VAT companies on 1 April 2022?

We all know that Making Tax Digital is the most important laws change to the UK’s tax methods in a era. Again in 2015, when it was initially introduced, the intention was to digitise all types of tax submissions by 2020. Nevertheless, the preliminary timeline was revised. and the programme actually began with the primary mandate again in April 2019 (for VAT-registered companies with taxable turnover over £85,000).

Now that the primary wave of MTD adjustments has ended – with the mandate for the remaining VAT-registered inhabitants again in April final yr. Primarily, all VAT-registered companies are actually legally required to adjust to MTD guidelines.

The mandate is legislation, and if any impacted enterprise is but to adjust to the MTD guidelines round digital record-keeping and digital VAT return submissions, that enterprise shall be penalised because the date for closure of VAT on-line accounts has already handed.

So, when did VAT on-line accounts shut?

From the 1 November, companies will now not be capable of use their current VAT on-line account to file their quarterly or month-to-month VAT returns. VAT registered companies should now join Making Tax Digital (MTD) and use MTD-compatible software program to maintain their VAT data and file their VAT returns.

From the 24 August, HMRC began contacting companies that also want to enroll and get MTD-compatible software program earlier than November. Companies that file annual returns will nonetheless be capable of use their VAT on-line account till 15 Might 2023.

How had been companies knowledgeable of this vital change?

As talked about, HMRC launched a communications plan that kicked off on 24 August 2022.

Mandated companies but to adjust to the brand new regulation then heard concerning the new necessities by means of a collection of emails or letters that knowledgeable them find out how to adjust to the adjustments and what occurs if they don’t.

For the reason that 1 November, anybody who makes an attempt to log in to their VAT on-line account shall be knowledgeable that they’re now not obtainable for quarterly and month-to-month filers.

Does that imply there shall be any penalties for companies that don’t adjust to Making Tax Digital?

New penalties for late submission shall be utilized to companies if they don’t meet obligations to submit their VAT return to HMRC on time.

As a substitute of receiving an computerized penalty from HMRC for each late submission, they are going to incur quite a lot of factors every time they miss a deadline and solely be penalised in the event that they hit a sure threshold.

The brand new penalty system applies to any VAT submissions for tax durations beginning on or after 1 January 2023.

Extra details about how the brand new penalty system works may be discovered right here.

Furthermore, if a VAT-registered enterprise information its VAT returns however doesn’t use MTD-compatible software program, it could obtain a Submitting By the Incorrect Channel (FTIC) penalty.

The quantity companies could also be charged relies on their turnover. For the companies impacted by the mandate on 1 April 2022, that penalty applies to every return filed incorrectly, and the penalty can be £100 as their turnover shall be beneath £100,000.

Making Tax Digital is bringing some large adjustments. What are the advantages?

I perceive how daunting it may be to alter methods of working with regards to managing taxes. Most individuals are proud of how they presently do issues, particularly these with very small companies that juggle a number of duties and search to give attention to ensuring their enterprise is worthwhile.

However, Making Tax Digital and the adoption of digital accounting has many advantages for the taxpayer. Digital data and software program assist scale back widespread errors so taxpayers don’t pay too little or an excessive amount of. It reduces the scope for error by implementing automation and error checks that assist enhance accuracy.

Accounting software program is constructed to automate and optimise repetitive admin duties, which helps unencumber time, and that is one thing so vital for any enterprise – however particularly the smaller ones.

Finally, MTD was carried out to make tax administration more practical, extra environment friendly, and simpler for taxpayers to get their tax proper.

Any closing ideas?

One factor that hasn’t modified from paper to digital returns is that it’s greatest to not wait till the final minute to get issues sorted. 

Hold this four-step course of in thoughts…

Step 1. Select MTD-compatible software program like Sage Accounting.

Step 2. Examine the VAT configurations in software program forward of authentication with HMRC.

Step 3. Hold digital data for present and future VAT returns.

Step 4. Join MTD at the least seven days earlier than your return is due, enable software program to work with MTD, and file your VAT returns on to HMRC.

Bear in mind: MTD isn’t computerized. Even when your corporation already makes use of software program to maintain data and to file VAT returns on-line, you have to not neglect to join MTD earlier than you file your subsequent return.

Thanks, Fabiano. Our readers report that Making Tax Digital has actually helped to make tax extra environment friendly. That is notably true once they’re ready to make use of accounting software program that may join with their checking account to get a 360-degree view of their enterprise funds.

Small Enterprise was chatting with Fabiano Rocha, product advertising supervisor at Sage.

This text was written as a part of a paid-for content material marketing campaign with Sage