Changes in Making Tax Digital for VAT
Most VAT-registered businesses with a taxable turnover above the VAT threshold (£85,000) are already familiar with Making Tax Digital. They’ve been required to keep digital VAT records and send returns using MTD compatible software since 2019. From April 2022, Making Tax Digital applies to all VAT-registered businesses (with a few exceptions).
MTD for Income Tax Self Assessment (ITSA)
From April 2024, Making Tax Digital for ITSA will apply to unincorporated businesses and landlords with a total business or property income above £10,000 per year. Under MTD for ITSA, businesses and landlords will be required to submit quarterly updates to HMRC, as well as an annual end of period statement (EOPS) and final declaration.
Keep clients informed about Making Tax Digital
As Making Tax Digital for accountants and bookkeepers is changing, it’s a good idea to keep your clients in the know about what will be required of them. If they join Making Tax Digital for VAT or Income Tax they must keep digital business records and:
- for VAT, submit their returns to HMRC using MTD-compatible software
- for income tax, provide summary updates of income and expenses to HMRC every quarter and finalise their tax using MTD-compatible software
Clients with a taxable VAT turnover below the threshold
It’s advisable to check your clients’ turnover on a rolling 12-month basis to see if it exceeds the VAT threshold. If it does, then MTD applies from the first day of the following month. If their VAT taxable turnover subsequently falls below the VAT registration threshold, businesses must continue to follow the MTD rules (subject to some exemptions).
Even if a client’s VAT registered business falls below the VAT threshold, it might be an idea for them to voluntarily join MTD for VAT so all parties can get familiar with it.
Xero and the benefits of Making Tax Digital for accountants
For accountants and bookkeepers, online accounting has many benefits. It can save time, reduce manual errors and encourage collaboration with clients, ultimately giving your clients transparency and more control over their finances.
Xero calculates VAT and files VAT returns online securely with HMRC using software that’s compatible with MTD. Find out more about submitting VAT returns easily with Xero.
Signing up your clients for Making Tax Digital for VAT
Signing up your clients is easy. You’ll need an agent services account. You may already have an account if you’ve previously signed up for the Trust Registration Service or signed clients up for Making Tax Digital for VAT. If so, you won’t need to create a new one.
MTD resources for accountants and bookkeepers
Explore our accounting and bookkeeper guides, articles, and webinars covering everything you need to know about Making Tax Digital for VAT, including how to support your clients with the shift to MTD.