Keep digital VAT records

VAT registered companies and businesses with sales of more than £85,000 must sign up and follow the Making Tax Digital (MTD) rules for VAT. You must keep digital VAT records afterwards.

VAT companies and businesses with sales less than £85,000 per year can sign up voluntarily. By 1 April 2022, It is compulsory for all VAT registered companies and businesses to enrol for the Making Tax Digital scheme.

VAT records to keep

Here are a list of digital VAT records you must keep under the MTD rules.

Your business details

For your business, you must keep your business name, address and VAT registration number.

VAT accounting scheme

You must have a record of any VAT accounting scheme you use. For example, the margin scheme, annual accounting scheme, cash accounting scheme and/or flat rate scheme.

Your sales records

The VAT on everything you sell, lease, transfer or hire out. In other words, the supplies you made.

Your purchases records

The VAT on goods and services you receive. For instance, everything you buy, lease, rent or hire. Put it simply, the supplies you received.

Adjustments on VAT returns

If you are or have made an adjustment to your VAT return, you must keep a detailed record of the adjustment.

The tax point

Your tax point can vary depending on the goods and services you buy and sell. The tax point is also known as the time of supply. Read more about the time of supply here.

Your VAT rate

The current standard VAT rate is 20%. some businesses charge different VAT rate on their goods and services. For example, businesses that sell baby clothing and footwear charge zero per cent on VAT.

Other transactions for VAT

  • 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

Companies House filings

Besides, complying and maintaining good digital VAT records and submitting your VAT return on time to HMRC, if your VAT registered business is a limited company, you must also deliver your company accounts and confirmation statement to Companies House promptly.

If you require any help with your VAT returns, company accounts and confirmation statement filing, feel free to contact our accountants, they will be more than happy to assist you.

Sign up for Making Tax Digital (MTD)

HMRC requires all VAT registered businesses to sign up for Making Tax Digital (MTD) by April 2022. Businesses making sales of more than £85,000 should already be adopting the MTD rules.

After you enrolled to the MTD programme, your business must do the following:

  • Sign up to MTD and follow the rules.
  • Keep digital records
  • Submit your VAT returns using MTD compatible software.

For businesses with sales below £85,000 have the option to sign up for the MTD programme voluntarily before April 2022. However, even if your business is not yet signed up for Making Tax Digital (MTD) programme, you are required to use MTD compatible software to file your VAT returns from 8 April 2021.

After this date, HMRC will no longer accept VAT returns submission using EXtensible Markup Language (XML) software. The reason for this change is that HMRC is migrating to a new IT system as part of their digital transformation and this new IT system does not accept XML VAT returns submissions.

Submit your VAT returns using Making Tax Digital (MTD) compatible software

If you do not yet sign up for Making Tax Digital (MTD) after April 2021, you can use the HMRC Business Tax Account to submit your VAT returns.

You would require your Government Gateway user ID and password you created when you first registered a business tax to login into your HMRC Business Tax Account.

Alternatively, you may appoint an accountant to submit your VAT returns for you.

Software providers

HMRC has communicated with all software providers that provide XML submission platform for this change and your software provider would communicate with you what are their plan on this migration.

Surcharges and penalties for non compliance with MTD rules

HMRC will issue surcharges and penalties if your business failed to comply with the Making Tax Digital for VAT rules. For example, if you do not use your HMRC Business Tax Account to submit your VAT return and you send in a paper VAT return to HMRC, you will get £400 penalty.

Click here for more information about MTD surcharges and penalties.

Besides, making sure your VAT registered business comply with MTD rules, if your business is a limited company, make sure your confirmation statement and company accounts are submitted by the deadlines to Companies House to avoid a late filing penalty.

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