Updated 7th October 2020
We’re thrilled to announce Xero’s Making Tax Digital (MTD) for VAT solution is live in Xero. It’s available in all Xero plans that support VAT at no extra cost.
Under MTD for VAT, VAT registered businesses with a turnover above the £85k threshold will have to keep digital records and file their VAT returns using compatible software.
In July 2020, the government announced that MTD will be compulsory for all VAT registered businesses, not just those that are above the VAT threshold, from April 2022.
Our solution ensures businesses are fully compliant with the new HMRC rule.
Making Tax Digital doesn’t have to be overwhelming – we’ve been working closely with HMRC for over three years to ensure all businesses are supported through this transition.
After conducting several pilots and gathering feedback from accountants and businesses, we’ve built a whole new VAT process that ensures you and your clients can fulfil your MTD obligations.
New features include a VAT overview, extra reports, the ability to post VAT adjustments and submit in real-time to HMRC.
How to activate the solution in Xero
Customers must sign up to MTD for VAT with HMRC – it’s not possible to submit MTD VAT returns without doing this first.
Next, you’ll be asked if you wish to activate the MTD VAT return solution in Xero (this message will appear when you open the VAT return section of Xero). Remember if the MTD for VAT solution has already been enabled by another user, this will automatically display when viewing the VAT return.
Those that have signed up with HMRC need to enable the MTD VAT return feature in Xero. Those that haven’t should continue to file non MTD VAT returns.
If you and your clients have been participating in our beta programme, you don’t need to do anything – you’re already set up.
If you’re part of an accountancy practice that manages clients above the VAT threshold, and those clients are not yet on MTD compatible software, we recommend you start migrating them now.
If you have clients using Sage or Quickbooks desktop, you can easily convert them for free using Movemybooks.
Bridging software is now live in Xero
For those using bespoke software that isn’t compatible with MTD for VAT, Xero now includes a bridging software feature as part of our MTD VAT Return solution.
The feature is available in all Xero plans that support VAT at no extra cost (please note that the bridging software solution is not available for those on the Flat Rate Scheme) and will allow businesses to continue using spreadsheets to calculate VAT and keep digital records.
The solution is live for all Xero partners – practice staff users will have access to this automatically, whilst business users can request access from our customer experience team. To learn more about the bridging software in Xero and more, check out our page.
Preventing fraud for you and your clients
When your Xero account is connected to HMRC’s MTD for VAT system, Xero will securely connect and submit data to HMRC. In addition, HMRC legislation requires Xero and other software vendors to submit additional information to HMRC for fraud and security prevention purposes – like browser data (such as IP addresses and other metadata). This is referred to as transaction monitoring. To learn more, take a look at HMRC’s transaction monitoring notice.
And rest assured, we’re not changing any of our existing real-time security monitoring. Read more about Xero’s security benefits.
If you still have questions on Making Tax Digital, contact your Xero Account Manager or email firstname.lastname@example.org. If you’re a small business, please contact your advisor or touch base with our support team via Xero Central.