Making Tax Digital for VAT records

From 1 April 2022 all VAT registered businesses must sign up to Making Tax Digital (MTD), whatever they earn.

Chartered Certified Accountant
Hayley Hedges-Quinn
MTD is the first move towards digitising the UK tax system: in other words, creating digital record keeping.
Heralded as the UK’s leading programme to make tax easier for businesses and sole traders, the government’s aim is for an ‘end of the tax return’ through a ‘transformed tax system’. The idea, according to HMRC, is to make the bureaucracy of tax simpler, more effective and efficient; helping people and businesses keep on top of their daily accounts, taxes and finances.
All VAT registered businesses need to get on board by 1 April 2022, and Income Tax Self-Assessment becomes law on 6 April 2024.

How to keep digital records

There are literally hundreds of compatible software packages that connect to HMRC systems including QuickBooks (Inuit), Sage and Xero; you may already be using one of them, but if you’re not sure just click on the link above to take you through to the page that lists all the compatible software choices.
It is important to know that if you use more than one software system you will need to link them by your first VAT period after 1 April 2021.

To link software, you can:
  • use formulas to link cells in spreadsheets
  • email records
  • put records on a portable device to give to your agent  
  • import and export XML and CSV files
  • download and upload files
Registering your business for MTD
First you need to have chosen a compatible software package, then you will be required to submit:
  • your business email address
  • a Government Gateway user ID and password - if you do not have a user ID, you can create one when you use the service
You’ll also need:
your National Insurance number if you’re a sole trader
your company registration number and Unique Taxpayer Reference if you’re a limited company or registered society
your Unique Taxpayer Reference and the postcode where you’re registered for Self Assessment if you’re a general partnership
your Unique Taxpayer Reference, the postcode where you’re registered for Self Assessment and your company’s registration number if you’re a limited partnership
the date you registered for VAT; you can find this on your VAT certificate. If you do not have a copy of your certificate it can be found on your Government Gateway log in, or you can telephone and request it in the post from HMRC
your VAT registration number and latest VAT return
Records you must keep digitally:
  • your business name, address and VAT registration number
  • any VAT accounting schemes you use
  • the VAT on goods and services you supply, for example everything you sell, lease, transfer or hire out (supplies made)
  • the VAT on goods and services you receive, for example everything you buy, lease, rent or hire (supplies received)
  • any adjustments you make to a return
  • the ‘time of supply’ and ‘value of supply’ (value excluding VAT) for everything you buy and sell
  • the rate of VAT charged on goods and services you supply
  • reverse charge transactions - where you record the VAT on both the sale price and the purchase price of goods and services you buy
  • your total daily gross takings if you use a retail scheme
  • items you can reclaim VAT on if you use the Flat Rate Scheme
  • your total sales, and the VAT on those sales, if you trade in gold and use the Gold Accounting Scheme
You must add all your transactions to your digital records, but you do not need to scan paper records like invoices or receipts. and is usually the smallest section in terms of pages.
You also need to keep digital copies of documents that cover multiple transactions made on behalf of your business by:
  • volunteers for charity fundraising
  • a third party business
  • employees for expenses in petty cash
Once you have all the above information you are ready to register at the Gov.Uk page. Once registered, your business will be fully digital with HMRC and you will not be required to complete paper-based returns or to manually complete your VAT return online.
If the thought of turning your company digital by April 2022 is causing you concern and you’d like to talk through any worries, please call Hayley at Hedges-Quinn & Co on 01473 657853 for a chat.
Follow Hayley on Linkedin and join the mailing list