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Making Tax Digital: a process for submitting your VAT return online

The introduction of Making Tax Digital (MTD) in April has changed the way UK businesses submit their taxes. If your business is VAT registered and above the £85k threshold, then you must now submit your VAT return digitally via your HMRC-recognised software.

MTD was designed by HMRC to make the UK tax system more effective, efficient and easier for taxpayers. But making a digital submission can feel daunting – especially the first time – so we’ve teamed up with Spencer Smith, owner of smlbiz Limited, Virtual FD Services, to help you through this process. 

Here’s everything you need to think about when submitting your VAT return online.

Step 1 – Make sure your accounting software is MTD ready

Most off-the-shelf accounting software packages are now MTD compliant. Popular examples include Quickbooks, Sage and Xero. There are also stand-alone intermediary software packages available for those businesses that can’t/won’t change their non-compliant software.

Step 2 – Authorise your account

You must pre-authorise your software to connect to your Gov gateway account. This is easily done directly via the software and is a one-off task that must be completed before you submit your first return.

Step 3 – Process all your transactions

Before you start to review your VAT return, it is essential that all of your accounting transactions have been entered for the period covered by the return. Sources of VAT transactions are typically: sales invoices/credits, purchase invoices/credits, cash book entries for all bank/cash accounts and employee expenses.

Step 4 – Late entries

If you have received and processed late entries dated before the period of the current return, make sure your software is set to include those entries in your VAT return. If you don’t, you might not be claiming back everything you should.

Step 5 – Review the entries by VAT code

Your software should be able to list all your entries by VAT code. This is a good way to check whether you have miscoded something. For example, if all your goods/services are subject to VAT, check that you don’t have sales invoice/credit transactions coded with zero or no VAT codes. Not all of your purchases will have VAT charged. Make sure you check the VAT status of all your suppliers and never just assume VAT has been charged. It is good practice to maintain your customer and supplier records with the correct default VAT code to ensure the correct code is always being used.

Step 6 – Reverse charge VAT

Many people get this wrong. You may not have realised that some of your purchases are invoiced using reverse charge VAT rules as the VAT amount is zero. If you pay for services charged by VAT-registered businesses in Europe, make sure they’ve used your VAT number and use the reverse charge VAT rules, otherwise you could be paying VAT when you don’t need to. Your software should have a reverse charge VAT code to use which accounts for both the output VAT of your supplier and your input VAT, so the net amount of VAT claimed is zero.

Step 7 – Correcting errors

Make sure that any adjustments or corrections are carried out in your Making Tax Digital-compatible software, as you can’t enter these figures manually any more. If you use journal entries and need to record VAT, make sure you are able to select a VAT code entry that will be picked up by the VAT return. Some software packages don’t allow VAT to be recorded by journal entries, so choose a method that works best for your system.

Step 8 – Check the VAT control account

The VAT control account is the general ledger account that holds the total balance owed to HMRC. In a typical UK chart of accounts, that account code would begin 220. The balance at the end date of the period for the VAT return should match the value in box 5 of your VAT return. 

If is doesn’t, check for entries that have been posted directly to this account. Manual journals might be the culprit here and would need to be reversed and replaced by entries with a VAT code that will be included in the VAT return. You want to make sure that the figures match each time you make a return.

Step 9 – Get guidance before you submit

If you are not sure about anything to do with recording VAT for your business, have a look at these useful guides from HMRC:

https://www.gov.uk/vat-businesses

https://www.gov.uk/guidance/making-tax-digital-for-vat

Step 10 – Submit the return

And now the easy bit! Once you have checked your entries, made any adjustments and corrected any errors, all you have to do is click a button and your software will make the submission automatically.

All accounts packages will differ slightly, so it would be wise to double check the provider’s website for further guidance.

Getting started with Process Bliss – free process template

Click on the link below to sign up for your 14-day free trial, and we’ll populate your account with this template for free!

Click here for more information about Spencer and his Virtual FD service.

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