How to turn HMRC's VAT changes to your advantage

Ensure your business is following HMRC's new VAT rules with a six-point guide from FreeAgent

The way you file your VAT return may have changed, but HMRC’s new reporting rules aren’t as scary as they seem and could actually benefit your business over the long term.

The Making Tax Digital legislation requires businesses with VATable sales above the annual £85,000 VAT threshold to keep digital records and file digital VAT returns through MTD-compatible software.

But it needn’t be a hassle: putting in some effort now will help ensure you’re tax compliant and well placed to grow your business over the coming years.

Here is a six-point guide by FreeAgent, the online accountancy software experts, on how small businesses can turn HMRC’s changes to their advantage.

Step one: register with HMRC

Sign up with HMRC for MTD as this won’t be done automatically. You will also need to authorise your software before you can start submitting VAT returns. Give yourself plenty of time, as it can take up to a week for HMRC to process your registration.

Step two: choose your software package

This is crucial. You will need an MTD-compatible software package that allows you to keep records and submit your VAT returns to HMRC. FreeAgent has already enabled thousands of businesses to do so under the new Making Tax Digital system.

Step three: don’t be complacent

As the legislation is now in force, it's important to make an effort to comply and switch to the new VAT filing system. However, to help businesses make this transition, HMRC has stated that it will be lenient in its approach towards issuing penalties. In August 2019, Jim Harra, deputy chief executive of HMRC, said: "Our ambition is to help businesses to get it right, not to penalise them."

Step four: enjoy the business benefits

It may seem that only HMRC will enjoy the benefits of digital filing, but this isn’t the case. The proper use of accountancy software enables you to be more on top of your business finances – and better placed to make decisions about its future direction. You’ll be able to file your VAT returns more quickly and efficiently, with better organisation of data and easier access to up-to-date figures.

Step five: see the bigger picture

MTD for VAT is the first step in the government's journey towards fully digitising the UK's tax system. The quicker you get to grips with this new world of digital tax filing, the more beneficial it will be for your business.

Step six: remember to pay your bill

The process for filing your VAT return might be different but one thing that hasn’t changed is having to pay your VAT bill on time. Irrespective of the new legislation, you could be hit with a hefty surcharge for defaulting on what you owe – and this could be as high as 15% of the VAT outstanding on the due date.

To find out how FreeAgent could help your business, click here