Got new or existing clients looking to change their processes so they adhere to Making Tax Digital for VAT?
With all VAT registered businesses having to follow Making Tax Digital (MTD) for VAT rules, the number of clients you need to help in this area will increase (if it hasn’t already).
To help you support your clients with MTD, we’ve created this article.
It covers the benefits of digital working and how to educate your clients on how they need to submit their VAT Returns, and plenty more too.
Here’s what we cover:
Which clients does Making Tax Digital for VAT apply to?
All VAT-registered businesses have to follow the Making Tax Digital for VAT rules.
Since 2019, MTD for VAT applied to businesses with a taxable turnover that was over the VAT threshold (currently £85,000).
The remit for MTD for VAT expanded in April 2022. Now, the rules also apply to businesses under the threshold that are registered for VAT (unless they’re exempt)..
How to encourage clients to move to digital ways of working
One of the key reasons for Making Tax Digital existing is to encourage businesses to adopt digital ways of working.
To resist this is not only to risk breaking the law but it also puts the business at a competitive disadvantage.
When attempting to comply with MTD’s rules, businesses that cling to old ways of working and rely largely on paper have to put in more effort than those that don’t.
But you can help your clients by communicating this to them, while emphasising the benefits.
Using HMRC-recognised accounting software means business admin tasks can be reduced from days to just hours.
It means businesses always know their cash flow position, so they can make smart decisions (and spot any problems before they become out of control).
And creating a VAT Return if the accounting data is already within the software is just a matter of clicking a few options, then perhaps applying adjustments, and clicking to submit the return.
It’s this positive and inspiring message that can often be buried underneath what seems to businesses to be yet another mandatory requirement from the government.
And it’s not just clients that benefit.
Making Tax Digital means that you, as an accountant, are in a better position to assist your clients and offer an even better service to them.
Start your clients on the journey today by helping them use software that’s MTD-ready and that will support all future MTD compliance requirements.
In April 2024, many sole traders will have to use MTD for their income tax. While from April 2026 at the earliest, incorporated businesses will have to use MTD for their corporation tax returns.
7 tips to get clients ready for Making Tax Digital for VAT
Here are seven ways you can help and support your clients with Making Tax Digital for VAT.
1. Educate your clients about the requirements of Making Tax Digital
HMRC is relying on accountants to educate about the specifics of MTD for VAT.
Since you intimately understand the situations of your clients, this makes sense.
So how can you do this?
Here’s three easy and simple suggestions:
- Tack on information to the end of existing conversations. Use every client touchpoint as an excuse to educate, and ensure all members of your staff have the knowledge to do so. Some practices have even added MTD messaging to their email signatures to ensure it’s always included in communications. Updating your website and social media accounts is a wise move.
- Email blasts can keep your clients up to date. In fact, treating this just like a marketing campaign will pay dividends because you should be selling new or different service offerings that fit with MTD’s requirements and what your clients need. Treat this as an opportunity to sell increased awareness of what you offer.
- Webinars can help you reach lots of people. If you run the webinar as a Q&A session, the initial prep requirement is reduced too. Worried about being stumped by a difficult question? Let people know you may have to respond with an answer after the webinar. And video conferencing tools such as Zoom and Microsoft Teams are essentially free, easy to use, and widely adopted.
2. Help clients switch to digital record keeping
This might catch out clients who ask you to take care of their VAT Returns for them.
They might think they can simply forget about Making Tax Digital for VAT, and carry on as they always have.
But they’ve still got to keep VAT accounting records digitally, and know about the digital linking rules (no copy/cutting and pasting of key VAT data from one destination to another).
This might seem like an education issue. But it’s more than that.
You may need to help your clients adopt a digital solution that’s right for their needs.
At its most basic, this could be just a spreadsheet – although the MTD for VAT rules mean it needs to include more details than just input and output VAT amounts (for example, invoice-level details such as tax point dates, VAT rates, and so on).
But if the client uses accounting software that connects to your systems, which in turn makes producing VAT Returns much easier, it’s a win-win situation for both you and them.
3. Provide calendars and deadlines for clients
When clients first hear that Making Tax Digital is going to affect them, you can expect four W questions in rapid succession: Why, when, who, and what.
The ‘when’ question is likely to be one of the most pressing that clients will ask of you because they’ll be afraid of getting penalised.
You can answer it very easily by providing deadlines for the client to meet. This includes registration deadlines, start days, and first filing dates, as follows:
When do clients sign up for MTD for VAT?
Clients shouldn’t sign up less than:
- Seven days before their return is due; or
- Five days after their return is due.
When do clients start using MTD for VAT?
For clients who file quarterly VAT Returns, these are examples of what start dates look like:
- 1 April 2022: If the previous VAT quarter ended 31 March 2022.
- 1 May 2022: If the previous VAT quarter ended 30 April 2022.
- 1 June 2022: If the previous VAT quarter ended 31 May 2022.
When do clients first file VAT Returns using MTD for VAT?
Again assuming quarterly returns, these are examples of when initial VAT Returns for MTD for VAT must be filed:
- 7 August 2022 for a VAT quarter beginning 1 April 2022.
- 7 September 2022 for a VAT quarter beginning 1 May 2022.
- 7 October 2022 for a VAT quarter beginning 1 June 2022.
4. Help clients choose software for Making Tax Digital
Before clients can register for Making Tax Digital for VAT, they need to know which MTD-recognised accounting software they’re going to use. HMRC won’t let them proceed unless this is known.
The software can take different forms, depending on the client’s needs, and you should be prepared to help with solutions.
Some may choose to use bridging software with their existing spreadsheets.
Others may use their existing software but add in an MTD for VAT submissions module.
Then there are those who find their software is already MTD-recognised and they simply need to register for MTD, and then authenticate within the software.
Make sure your clients realise that. Just because the software is MTD-recognised, it doesn’t mean they are.
Helping clients with software is one of the immediate messages to communicate, because some may need to switch accounting packages if the one they use can’t be updated.
5. Clear up misconceptions about MTD for VAT
While you have to educate your clients about Making Tax Digital for VAT, you also need to cover myths, misinformation and incorrect assumptions.
For example, clients may assume there’s another soft landing period this time around for MTD for VAT.
In April 2019, this provided additional time for businesses to be less strict when interpreting the digital linking rules, meaning they could continue to copy and paste from one place to another.
However, there’s no soft landing period now for new adopters of MTD for VAT.
There’s a new penalty points system to consider too, which starts from January 2023.
By far the biggest misconception will be that MTD doesn’t apply to your voluntary VAT-registered clients (it does, of course).
There might also be beliefs that businesses can opt-out of MTD for VAT, with clients perhaps having heard about digital exclusion.
But this is limited to exceptional individual circumstances, such as where somebody lives in a location without internet access, or for people who can’t use technology because of physical or mental impairments.
6. Help clients create end-to-end MTD for VAT workflows
Education on Making Tax Digital for VAT may be just the first step for you to take with your clients.
You may need to help some of them translate their existing processes into ones that are compatible with MTD for VAT.
If invoices are created outside the accounting software, for example, the details need to be entered into the system to be compliant with the digital records requirement.
This needs to be something that always happens for each and every invoice, otherwise there’s a risk of penalties from HMRC.
Key to helping clients create MTD-compatible workflows is identifying the points at which accounting data is generated or manipulated.
Typically, this will be at the point at which sales and purchases are made.
In this instance, ask your clients when paperwork is generated for VAT purposes, because it’s that VAT data that needs to be captured (such as tax point, VAT rate, VAT number and so on).
It’s when they receive receipts, bills and invoices, for example, that they’ll need to be aware of MTD for VAT’s requirements.
7. Help your clients help each other
Having gained experience from the 2019 rollout of Making Tax Digital for VAT, you can segment clients into lists that will determine how and when you help them.
You might segment out those that need help first (such as monthly VAT filers), or those that are more technically savvy and will perhaps need less help overall.
And it’s likely that some of your clients will embrace MTD for VAT more wholeheartedly than others, who may consider it a difficult and painful process.
So why not leverage the clients that can in order to help the clients that can’t?
There’s a number of ways you can do this, such as via client get-togethers (in person or online).
Some practices even run their own private online chat forums on their websites, where clients can gather to speak to each other.
Final thoughts on Making Tax Digital for VAT
Onboarding clients to Making Tax Digital for VAT might feel like a duty for accountancy practices, but it’s actually a way to increase exposure for what you do.
Savvy practices are using it as an opportunity to create new service offerings that are more aligned the way the business world operates nowadays.
Why not do the same?
At the end of the day, helping clients with new processes can be a rewarding experience in itself, and can help increase client confidence and satisfaction in what you do for them.
Editor’s note: This article was first published in January 2022 and has been updated for relevance.
Making Tax Digital: A practice survival guide
Need support with Making Tax Digital, for your clients and your practice? This free guide will help you get ready for MTD for VAT, Income Tax Self Assessment and Corporation Tax.