While there is a considerable amount of information available regarding HMRC’s new Making Tax Digital (MTD) initiative, it can quickly become confusing for businesses that are required to now submit their VAT returns online with approved software.
For example, many businesses were not aware that it is necessary to sign up for MTD. Qualifying businesses are not automatically able to submit VAT returns online.
Businesses already working with HMRC-approved software also had the belief that this meant they were already signed up for MTD, or that by connecting through their current software, this would sign them up. This is not the case.
It also became confusing for businesses that participated in the pilot version of the MTD interface.
That these situations have occurred is easy to understand. There wasn’t a clear step-by-step for businesses over the £85,000 taxable turnover threshold regarding getting started with MTD. This article provides more information on when to sign up and the next steps for a business working with MTD.
When should you sign up for MTD?
Once you’re ready to sign your business up for Making Tax Digital, the next question is: when should you actually do so? There is, in fact, a specific time that the signup process should be completed.
Ideally, you should sign up in the time following the filing of your final non-MTD VAT return (with a payment made or a refund received) with at least 7 days before the end of your next VAT return period.
The reason for this is that transferring businesses from the previous gateway to the new MTD system takes HMRC a fair amount of time, especially considering the number of businesses moving to MTD after April 1st, 2019.
Keep in mind that once you sign up, HMRC will send you a confirmation email. This can take up to 72 hours and you will not be able to submit your VAT return before receiving the email.
Asking your accountant to sign up on your behalf
Another option is that if you work with an accountant, they can sign you up for MTD. This can be useful especially if they are managing your accounts and submitting your VAT returns for your business.
What happens if you sign up for MTD at the wrong time?
Businesses that have signed up outside of this window have encountered difficulties with submitting their VAT returns successfully. They’ve also seen issues with Direct Debit payments or repayments which have led to delays and subsequent cash flow problems for businesses expecting large refunds.
Is your business exempt from MTD?
There are a number of reasons that an otherwise qualifying business could apply for exemption from Making Tax Digital. For businesses over the £85,000 threshold, this could include reasons such as:
- Internet accessibility restrictions
- Religious grounds
Exemption applications already applied to online filing are carried over to MTD. HMRC have stated that many applications for business exemption have already been received. However, many of these are from businesses that are not required to file an exemption.
Only businesses that currently have a taxable turnover of £85,000 or that have not already been granted exemptions from digital filing and fall under one of the above exemption categories.
The taxable turnover is based on the one year period ending the month before the current month. When a business passes the threshold, it joins the group considered qualifying and must sign up for MTD.
Making Tax Digital software
The next step is to ensure that you have the right software. Currently, of the over 600 options for online accounting software available to businesses, only ⅓ are approved by HMRC for MTD.
The right MTD software will make it easy to connect your account to HMRC, select your VAT scheme, generate your VAT return for your reporting period, submit it directly online, and receive a confirmation.
Online accounting & invoicing software like Debitoor makes it easy to keep your records digitally and then preview and submit your VAT returns directly to HMRC with Making Tax Digital software.