Close the door, pull down the shutters. The time has come. HMRC is closing the old VAT online portal on November 1. You may have recently received an email from HMRC explaining that VAT-registered businesses will no longer be able to use this gateway to file monthly or quarterly VAT returns. Instead, you’ll need to submit them through Making Tax Digital (MTD)-compatible software.
If this slightly portentous opening feels overblown, that likely means you have your ducks in a row or are unaffected by the government’s push to digitise tax. Others, however, may look upon the date with the realisation that, oh dear, this is really happening.
You may have put off tax digitisation as too complex, too arduous, or ultimately, too overwhelming a task. This is understandable in a year fraught with obstacles for small businesses.
But MTD for VAT is an unavoidable reality, and one that, when embraced, can lead to significant benefits – including greater efficiency and huge time savings. We take a look at the journey so far, what this closure means, and the next steps for businesses emerging blinking into this bright digital dawn.
A fragmented journey
The road to tax digitisation has been a little bumpy.
There has been a lot of buy-in for MTD, and many small businesses who have undertaken the process have found it to be straightforward, especially when working with their accountant or software provider.
The benefits of digital tax are also already apparent, according to Lynsey Verillo, founder of Blackbook Winery: “With Xero, the process of submitting our quarterly returns for MTD for VAT couldn’t be easier. It’s really helping us manage our cash flow.”
But change of this size isn’t going to be universally embraced without trepidation. Some small businesses are yet to comply for any number of reasons – they may have missed the reminder letters dispatched by HMRC, or don’t know which digital tools to use, or are afraid to change.
However, it’s vital these businesses look to others for support and guidance to comply with the legislation.
Closed for business
While the portal’s closure on November 1 may feel sudden, it has been open a lot longer than many expected. MTD for VAT was mandated for all VAT registered businesses from April 2022, and HMRC have issued reminders and warnings regarding the impending deadlines.
And this next step was inevitable, with a new penalty system arriving in January 2023. If the portal were to remain open, there’d be no way for HMRC to effectively manage this.
So what does this mean for small businesses? VAT registered businesses that do not sign up for MTD and file their returns through a MTD-compatible software will be hit with penalties – something most small businesses simply cannot afford. There is time, however, to ensure it doesn’t happen.
Next steps
We know that many of the small businesses who are yet to comply need support to do so.
My first piece of advice would be to speak to your accountant, who can offer vital guidance and counsel as to how to make this change with a minimum of fuss. If you’re unrepresented, have a look online at the resources on HMRC and the software vendors available – including Xero.
You should also start keeping digital records using MTD-compatible software now. If you’re encountering teething problems, they can be addressed with the right support. But ultimately, you have to get the ball rolling to file VAT in a different way.
The future of MTD
HMRC has described this closure as an attempt to make MTD ‘business as usual’. So how close are we to seeing this become a reality?
The answer is pretty close, with more than 1.8 million businesses already signed up. If it doesn’t feel like business as usual now (you may need to get used to the new software when submitting your first return), it will soon.
And this is good news. Not only will the tax process be improved, the many business owners who also need to comply with MTD for Income Tax Self Assessment (ITSA) have an opportunity to get prepared even earlier. If you are a sole trader or landlord already keeping digital records and used to making periodic updates to HMRC, you’ll be ready for MTD for ITSA in April 2024.
While the portal may be closing, the door to greater efficiency and a smoother tax process has opened. If you’re yet to step through it, now’s the time. To find out everything you need to know about how to navigate this change and prepare for MTD for VAT, check out our hubs for small businesses and accountants.
The post The Making Tax Digital for VAT portal is closing. Here’s what it means for small businesses appeared first on Xero Blog.
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