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Requirements For Keeping VAT Records Under Making Tax Digital

For all VAT-registered businesses from April 2022 ...

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Posted by Roger Eddowes on 31/03/2022 @ 8:00AM

As of the 1st of April 2022, all VAT-registered businesses must use Making Tax Digital with functional, compatible software. But if your turnover is below £85,000 when are you expected to submit VAT returns digitally?

I've always felt Making Tax Digital for VAT is a positive move for the majority of small businesses!

I've always felt Making Tax Digital for VAT is a positive move for the majority of small businesses!

copyright: toonartist / 123rf

It's a very common question I get of late, and it has been confirmed by HMRC that all VAT-registered businesses, including those with a turnover below £85,000 must use Making Tax Digital (MTD) from their first VAT return on or after the 1st of April 2022.

"This can appear to be quite daunting for small businesses!"

Time is valuable to small business owners, but MTD is simply about keeping digital records and using compatible software to submit your VAT returns. Once implemented and working, it's not that difficult. It is a legal requirement, however, so you have to do it.

HMRC says the records you must keep digitally are:

  • your business name, address and VAT registration number

  • any VAT accounting schemes you use

  • the VAT on goods and services you supply such as what you sell, lease, transfer or hire out

  • the VAT on goods and services you receive, including everything you buy, lease, rent or hire

  • 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

Any transaction must be added to these digital records, but you don't need to scan paper records such as invoices or receipts.

Any VAT-registered business must ensure the accounting packages or bridging software they use maintains all of these records, then collates and prepares the VAT return and can communicate with HMRC digitally via their API to make their submissions quarterly.

What's the difference between an accounting package and bridging software? Simple ... your accounting package does all your day-to-day bookkeeping, produces management reports and communicates with HMRC directly, and bridging software is the link between your custom accounting package and HMRC.

All of the mainstream accounting packages have been updated for Making Tax Digital and that includes Xero, Sage and Quickbooks. You can find all the compatible software by clicking here.

If you've invested a lot of time and money into a spreadsheet accounting system, then that data must be imported into a compatible bridging software product and submitted that way. Your accountant will be able to help with this.

"You can't move data using copy and paste. The process
must be done digitally!"

There are going to be some businesses where it won't be practical to use digital tools to keep business records or submit VAT returns which could be because of age, disability or even location (no internet connection for example). If this is the case, you can get an exemption from HMRC and follow their guidance on how to make regular submissions.

I've always felt Making Tax Digital for VAT is a positive move for the majority of small businesses, and my team and I are always here to help get you set up and running efficiently.

Until next time ...

Business Godparent


Would you like to know more?

If anything I've written in this blog post resonates with you and you'd like to discover more about Making Tax Digital for VAT then time is short! It may be a great idea to give me a call on 01908 774320 and let's see how I can help you.

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About Roger Eddowes ...


Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.

Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.