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Making Tax Digital, made simple with Xero

Making Tax Digital, made simple with Xero

The Making Tax Digital (MTD) for VAT deadline is drawing closer. It’s less than a year until UK businesses that are VAT registered and above the threshold will be required to keep their records digitally, and submit VAT returns to HMRC using MTD-compatible software.

However, recent research (Oct 2017) at Xero has shown that 25% of accountants are not aware of MTD at all. This is a huge concern given that a quarter of SMB owners believe it’s their accountant’s responsibility to keep them updated with the latest legislation. But with MTD being such a huge moment in UK legislation, what does the accounting industry need to be aware of? With everyone scrambling to prepare for MTD, here at Xero we’ve been trying to make the process for small businesses and accountants alike, and here is how you can keep a cool head with Xero during MTD.

When is MTD?

HMRC has confirmed that Making Tax Digital for business (MTDfb) will come into effect in April 2019 starting with MTD for VAT.

From 1 April 2019, VAT registered businesses that are above the VAT threshold (currently £85k) will be required to keep their records digitally and submit VAT returns to HMRC using MTD-compatible software.

Other areas of MTD such as Income tax and Corporation tax have been put on hold until April 2020 at the earliest.

Will I be able to submit MTD VAT returns using Xero?

Absolutely. Xero customers are already able to submit VAT returns using Xero now, and we’re building a whole new VAT return experience and workflow to support the changes that MTD introduces. We’ve already built this new connection and we’re currently testing it with HMRC to ensure it works as expected. We’ll be participating in the closed beta that HMRC are running this summer, where our first customers will submit VAT returns for MTD.

Xero’s new MTD VAT will be available to customers with no upgrade fees and with as minimal impact as possible.

Is Xero approved to support VAT submissions to HMRC?

Yes, Xero is on the current VAT commercial software suppliers list. As it stands, there’s not actually a list of MTD VAT approved software suppliers. Later this year we’ll be on the MTD VAT suppliers list once everything has been completed, tested and proven out. HMRC will then decide when it’s appropriate to publicise that curated list of products that’ll be MTD-ready.

Since the most pressing legislation extends to those businesses above the VAT threshold, that’s our priority.

When can we use Xero’s MTD VAT functionality?

HMRC has strict adoption timelines in place – for example, we understand that monthly VAT customers can’t join MTD until after June 2019. And HMRC also has other qualifications for adoption. HMRC will qualify who can join and when, so we’ll need to rely on them to tell us who qualifies for MTD VAT beta in Xero, as well as after April 2019.

We’ll be joining HMRC’s open beta once it’s available later in the year. But we’re not yet sure of HMRC’s qualifying criteria, so we’ll need to understand that before interested Xero partners or customers can participate in the trial. For Xero partners, keep in touch with your account manager.

What will be the difference between filing VAT returns with Xero now and the MTD method?

MTD VAT in Xero will be a different experience to the VAT experience in Xero today. The VAT return is the same, but for example, HMRC will provide the returns to software, rather than people choosing dates for a return themselves. We’ll also make sure you’ll be able to make any required adjustments to the return before submitting to HMRC. There are other changes and differences too, so we’ll make sure you’re fully up to speed as soon as we’re clear on the process from HMRC.

What should we be doing now to make sure we’re ready?

If you’re already using Xero to submit your or your clients’ VAT returns, you don’t need to do anything right now. All Xero subscriptions currently supporting the submission of a VAT return will be updated for MTD VAT returns.

What key information should business owners know?

If you’re a business above the VAT threshold, make sure you’re using one of our standard Xero business edition subscriptions, or Xero VAT Cashbook which is available via your Xero partner.

What key information should accountants know?

Begin by segmenting your client base by those above the VAT threshold and make sure they’re using the right software (Xero business edition or Xero VAT Cashbook).

Xero migration certification is the perfect course to help with your firm’s segmentation and migration process, which Xero partners can do live in a classroom with our partner services team or online using our e-learning course – and it’s free.

What else should I be aware of?

MTD for VAT is due to commence for VAT periods starting on or after 1 April 2019. So all businesses will need to comply with the new process from this date onwards. This means that many businesses will need to make a decision about their accounting software soon to avoid facing the complication of changing part way through their accounting year. For example, a business with a 30 June 2018 year-end will need to use MTD-compatible software from 1 July.

MTD is here to make our lives easier, and once everyone is fully prepared, tax return deadlines will no longer fill people with dread. Fintech is once again on the cusp of creating a smooth functionality to ensure we spend time on the things we love – creating a more successful business.

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