Making Tax Digital has slowly expanded to VAT-registered businesses over the past few years. Under the requirements, eligible businesses must keep financial records in digital form and use BAT-compatible software to submit this data to HMRC.
As of April 2022, the requirement to be digital with HMRC has extended to include all remaining VAT registered businesses not already following the BAT scheme.
But less known is that HMRC has confirmed that the VAT online account portal will finally shut down at the end of October this year, writes Elizabeth Hughes of The accounting partnershipa nationwide online accounting service provider for a fixed, low monthly fee.
When does the HMRC VAT online portal close?
The deadline for submitting data via the online VAT portal is October 31, 2022 and the system will be unavailable from November 1, 2022.
The closure of the online portal leaves businesses no choice but to use the MTD software to file their VAT declarations, under penalty of penalties.
So what should contractors of public limited companies do to prepare for the final stage of tax digitization for VAT?
How entrepreneurs can send VAT information when the portal closes
Rather than manually submitting VAT data via your online VAT account, contractors must now keep digital records and use either Making Tax Digital compliant software or ‘transition’ software to make electronic submissions to HMRC. These digital links will replace the old manual method of entering your VAT figures into your online account.
Should contractors use MTD software or transition software?
In some cases, the use of transition software can facilitate the transition to MTD. For example, if you already use spreadsheets to maintain your financial records, you can continue to do so and then use the transition software to send your data.
As the name suggests, bridging software literally bridges the gap between your digital records and HMRC, to link the two together. Some VAT-registered entrepreneurs might find this simplifies the transition, but ideally the transition software should only be seen as an interim solution.
Transition software for BAT purposes: three key considerations
- The transition software itself does not meet all of the requirements of Making Tax Digital, so entrepreneurs relying on it will still need to use a compliant means of recording their accounts digitally.
- Using bridging software is really an extra step in the process of registering and reporting your VAT to HMRC. You may need to spend time exporting and reformatting data ready for download with bridging software. Not really in the spirit of MTD as the convenience flagship it’s supposed to be!
- Because it is not an end-to-end solution, using bridging software means you may also miss out on the other benefits of using fully compatible MTD software.
What is the benefit of using MTD VAT compatible software?
Entrepreneurs facing the impending closure of HMRC’s VAT portal may decide to submit their VAT returns using bridging software as a temporary measure. But in the name of efficiency, it’s certainly worth looking into the MTD-compatible software available.
A list of MTD approved software vendors is available on gov.uk, which is a good starting point to make sure those Google search results are the real deal!
Beware of software vendors who claim to offer MTD for VAT, when in reality they offer an accounting package that still relies on separate bridging software to make submissions. Yes, they are unfortunately there and not entirely transparent about their offer!
MTD features (including bank feeds)
Features vary by software vendor (as does price), so to get the best deal, and the one that’s right for your business, shop around. You may not need to pay for many features that you will never use.
In general, it’s worth looking for tools that can reduce the time you spend on accounting work. For example, some providers will link your records directly to your bank account using bank “feeds,” so your accounting will automatically populate using your transaction data. These feeds can reduce the time spent on manual data entry, and they also mean there’s less chance of typos tripping you up with HMRC. Nobody wants a rogue extra zero causing chaos.
When should I act?
The earliest would be best. The taxman’s online portal for submitting your VAT return is definitely in its twilight years, and you’ll need something to replace it. Ideally, something should be in place before the October 31 closing, giving you the chance to test that everything is working before you hit a deadline.
Last but not least, HMRC says it will start imposing penalties (along with interest on any late payments) for non-compliance from January 2023 – but the current penalties for VAT returns will still be in place before that. date.