Spring is often the time for change and new beginnings. In 2022, UK businesses need to prepare for adjustments to the HMRC Making Tax Digital Scheme. Small businesses in the UK should prepare for these changes now.


Making Tax Digital is a Government scheme aimed to help businesses eliminate errors and save time managing their tax affairs. The scheme hopes to digitalise the UK tax system. It launched in 2019 with a pilot scheme. Since then, it has witnessed minor adjustments every year. The tax year starting in April 2022 is no different. So what to expect?


How is Making Tax Digital for VAT changing?


Digital processing of tax returns has been mandatory for UK businesses above the £85,000 VAT threshold since April 2019. But the scheme is expanding in April. From then on, businesses charging VAT with a taxable turnover below £85,000 also need to comply with Making Tax Digital for VAT.


The HRMC is currently informing businesses about the change. If your small business falls into the new category, you should have received or should soon receive a letter informing you about the change.


What does the change mean for small UK businesses?


If your small business has submitted VAT via the HMRC portal or post, then you’ll need to start keeping records digitally. The Making Tax Digital scheme requires businesses to file VAT returns through approved software. Small businesses in the UK could face fines if they don’t comply with the rules.


While the April 2022 change only affects businesses charging VAT, all UK small businesses need to start getting ready. The scheme will evolve further, and non-VAT registered businesses and landlords will need to comply with MTD for Income Tax by April 2024.


Steps to take to get ready for Making Tax Digital


If your small business charges VAT, then you need to get ready to follow the Making Tax Digital scheme. In essence, your business must keep digital records and file VAT using MTD-compatible software.


Here are the steps you should take right now:


1. Pick a compatible software


Before you can sign up for the scheme, you need to pick a compatible software to file your business’ VAT. You can search for record-keeping and bridging software online here. The Government has also set up a video about getting compatible software if you need further help. Don’t forget that you can also ask your small business accountant for guidance.


You can pick any approved program you feel the most comfortable using. When you’re choosing software, you might want something that:


  • Automatically calculates the tax you owe
  • Syncs transaction data from your bank or an invoicing program
  • Updates transactions
  • Creates digital records of paper receipts


2. Sign up online


After finding software that fits your needs, you can sign up for MTD for VAT online. To sign up, you’ll need:


  • Your business email address
  • A Government Gateway user ID and password – these can be created when you sign up in case you don’t have them yet
  • Your VAT registration number and latest return
  • Sole traders need their National Insurance number
  • Limited companies or registered societies need their company registration number and Unique Taxpayer Reference (UTR)
  • General partnerships need UTR and the postcode they use for Self Assessment
  • Limited Partnerships require UTR, registered postcode and company registration number


You should also keep in mind that you shouldn’t sign up too close to the date your VAT return is due. HMRC recommends not signing less than seven days before and five days after your return is due to avoid paying twice.


3. Keep digital records


The Making Tax Digital for VAT scheme requires you to keep digital records. You can do that with the help of the software. The scheme asks small businesses to keep a digital record of the business name, adjustments to returns, the charged VAT rates and transactions. You’ll need to start doing this for any VAT return starting on or after 1 April 2022. Notice that your first submission might not be until summer 2022, depending on your VAT schedule.


Speak with a UK online accountant


In a recent Xero research, 45% of small businesses said their accountants are vital to business success. UK small business accountants can help you with the transition to digital accounting. A good online accountant can help your business find the right software and transition to Making Tax Digital. The scheme allows your accountant to file your VAT for you, which can relieve a lot of pressure on your end to deal with the new system.


If you want to know more about how we can help, contact our online accounting team. We can aid your business in the transformation. We can help you with the application process, record-keeping or choosing the right software.

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