Making Tax Digital for VAT & Software

From 1 April 2022 all VAT registered businesses will be required to register for Making Tax Digital. This will mean that you will be required to keep your VAT records digitally and you will no longer be able to submit your VAT returns through the current online VAT return system on the HMRC website. Making Tax Digital requires businesses to have a digital link between the VAT records and HMRC and the VAT returns are submitted directly through this link, to HMRC from your VAT records. This digital link must be in place for all VAT registered businesses for their first VAT return starting on or after 1 April 2022.

The most popular method of creating the digital link is by using a specially designed VAT record keeping software such as Xero, QuickBooks, Farm Plan, Sage etc however there are alternative methods if preferred, such as using an Excel spreadsheet alongside a ‘bridging’ software. Whichever route you choose, you must ensure that the records you keep are complete and contain all the information about every transaction which takes place for your business, including the date, value, VAT amount on everything that is purchased and sold.

As a firm, our preferred way of keeping records and submitting VAT returns would be to use Xero software, which is a cloud-based programme that can be accessed using a web browser. Xero is continually updated and enables businesses to connect directly to their bank accounts to ensure no transactions are missed and connects directly to HMRC to submit your VAT return, as well as providing many other services, including payroll. Overall, we find that using Xero can enable VAT record keeping to become more efficient and time saving, as well as enabling businesses to monitor day to day running more closely. Xero is a subscription-based software payable monthly and updates automatically, so no need to download regular updates to ensure your software is up to date. As a firm we can provide training to those wishing to use Xero to enable you to learn how to use it; however there are a vast number of You Tube videos available online which are extremely useful!

Xero is not the only software on the market, there is an extensive range of software packages available that will be compliant in providing the digital link required for Making Tax Digital and it will be your personal preference on which software suits you and your business best. Cloud-based software packages are becoming increasingly popular but there are also desktop-based software packages that can be purchased. It is important to choose the software that is most suited to you; as with the planned introduction of Making Tax Digital for Income Tax and Corporation Tax in the future, it is likely that your business will become more reliant on the software that you choose. Often software providers will offer a ‘free trial’ and it would be worthwhile exploring these when choosing your software.

If you feel that using a digital software is not for you, there is still an option to use an Excel spreadsheet alongside a bridging software, although we do not know how long we will be able to continue using these. There are a number of bridging softwares available, and these can be downloaded from the internet and will be added to your Excel programme on your computer as an ‘add in.’ You will need to input all your VAT data into your Excel spreadsheet to enable you to calculate the figures for your VAT return. By using the bridging software, you may need to change the layout of your Excel spreadsheet to be compatible, but the bridging software will be able to transmit the necessary data from your Excel spreadsheet to HMRC. Our preferred bridging software is Vital Tax however there are several available.

HMRC currently have a grant available ‘Help to Grow – Digital’ which has been designed to help small, incorporated businesses to sign up to a software for Making Tax Digital. Businesses will be able to receive up £5,000 to cover up to 50% of the cost of an approved software.

Converting to a digital system may seem daunting for many, but please be assured we are here to help and assist where required. If you are unsure of what will be expected from your business from 1 April 2022, please do not hesitate to contact us and we will be more than happy to help.

Alice Chapple ACCA ACIPP


Written by Alice Chapple ACCA ACIPP

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