MTD for VAT: Does HMRC change mean businesses must sign up a year early?

Is your business yet to register for Making Tax Digital (MTD) for VAT?

How does the prospect of signing up one year earlier than planned – by April 2021 – sound to you?

That’s one way some people might interpret a little noticed change by HMRC, which could have fairly large ramifications, if you don’t take note.

Where are we with MTD for VAT so far?

Since April 2019, businesses with turnover over £85k have been mandated to file VAT returns under MTD, but those below the threshold did not. This will change from April 2022 when all businesses must file through MTD.

What changes has HMRC made?

HMRC is retiring the existing online filing mechanism for VAT 100 forms from April next year.

This submission channel – known as XML – is currently used by many businesses using software for VAT submissions (either directly themselves or via their accountants).

Who does it affect?

The changes will not affect businesses that have already signed up to MTD for VAT but will impact VAT-registered companies who have not yet signed up to MTD and their agents.

What does it mean?

XML is currently one of three submissions routes, along with MTD and HMRC’s web service – an online form also referred to in some places as a business tax account.

For firms who aren’t MTD registered yet but who use third party software to submit VAT returns via the XML route currently, won’t be able to do so from April next year.

Will firms be able to add VAT information via the HMRC web service still?

Yes, for now. According to accountancy professional body ICAEW, the online VAT return available on gov.uk will “continue to have the same nine boxes but will look different”.

So, businesses could add the information and make the submissions manually. Firms “will be able to access the return from their business tax account as they have done previously,” ICAEW adds.

What is the timeline?

To clarify, XML will be closed completely from April 2021. So, from April 2021 submissions will need to go either by MTD through software or by re-entering the figures in HMRC’s web service.

From April 2022 MTD will become the only option because HMRC’s web service route will be closed completely.

Is it a meaningful change or something more superficial?

It seems there are mixed views. The change has caused plenty of head scratching but, depending on how you do things right now, it could mean a significant change.

Why’s it happening?

HMRC officials are preparing for all VAT registered businesses to move across to MTD for VAT in April 2022.

What should firms do now?

Don’t worry if you’re feeling a little unsure about this latest bit of news on MTD.

MTD compatible online bookkeeping software, such as KashFlow, is available and can provide a long term solution.  Our recommendation is for businesses to sign up to MTD now to avoid being caught out.

How do firms sign up for MTD?

To sign up for MTD please follow the below steps:

On Gov.uk website:

• Sign up to MTD for VAT via the HMRC website by clicking here.

After you’ve signed you’ll receive a confirmation email from [email protected] within 72 hours. Don’t forget to check your spam folder.

In KashFlow:

• In KashFlow go to ‘Taxes’ menu and connect your KashFlow Account to HMRC by clicking ‘Connect to HMRC’
• A new browser window will open the Government Gateway login page where you will be promoted to Sign in. You’ll need to enter your User ID and Password (the same ones used in Step 1)
• You’ll be asked to Grant Authority for KashFlow to interact with HMRC on your behalf
• You will be taken back to KashFlow where your latest VAT obligation will be automatically retrieved from HMRC and populated in the list of tax returns

Once you are connected to HMRC, you will no longer need to manually create a VAT return and specify the start and end dates as KashFlow will directly retrieve this information from HMRC and populate it in the table automatically.

Need more help?

If you’re an existing customer or want to get more information about joining, get in touch via this page.