Making tax digital: the ultimate guide to getting set up

The Making Tax Digital rules are already in place for lots of businesses, and soon, they’ll affect lots more. And sole traders too. It’s time to get clued on up what the rules mean for you and your clients. 

Deadlines are approaching on HMRC’s Making Tax Digital rules. Already, VAT-registered businesses with a taxable turnover above £85,000 are paperless. By April 2022, all VAT-registered businesses will also need to meet Making Tax Digital rules. And the following year, by April 2023, the rules will extend to people who submit a self-assessment tax return for business or property income totalling over £10,000 a year.   

The countdown is on. And with such a lot to do, it’s important you start getting ready now (if you haven’t already). Here’s your step-by-step guide to prepare for Making Tax Digital, along with some answers to FAQs. 

What is the deadline for Making Tax Digital for VAT? 

You need to be set up and ready to go by 1 April 2022, which means getting yourself and any colleagues trained up and using the software. These are the steps you need to take: 

Step 1 – Set up your software (we’ll come on to this later) and get it authorised 

Step 2 – Create an agent services account with HMRC 

Step 3 – Sign up existing clients and get new clients to sign up too 

Step 4 – Ask new clients to authorise you 

Step 5 – Train yourself and your team 

Now, we’ll run through these steps in more detail. 

Step 1 – Set up your Making Tax Digital software 

If you don’t already use digital software for your accountancy services, you’ll need to get some ASAP. It will be a requirement to use software that’s compatible with HMRC. Helpfully, HMRC has a very long list to choose from, and it includes popular ones like Xero, QuickBooks and a few offered by Sage. 

Your software will need to let you either keep and submit digital records to HMRC or act as a bridge between your spreadsheets and HMRC’s system.  

Step 2 – Create an agent services account with HMRC 

Confusingly, you need another account alongside your HMRC online services for agents account. This additional account is called the agent services account, and soon it will be the only account you need with HMRC. To set this up, you need your Government Gateway user ID. 

Step 3 – Sign up new and existing clients 

Before you can start submitting VAT returns through the Making Tax Digital process, your clients need to be signed up. You can do this for your existing clients. First, make sure they’re on your agent services account. If they’re not, you can copy them across. Second, gather a few details, including their VAT certificate, business entity type, contact details and business email address. You may also need their UTR, postcode and NI number. Third, follow the steps on the government website to sign them up. 

When you take on new clients, you’ll need to ask them to sign up to Making Tax Digital and then to authorise you. 

Step 4 – Ask new clients to authorise you 

You can do this next step on your agent services account. Choose the option for ‘Ask a client to authorise you’. You can then create a link and send this to your clients. They’ll need to respond before the link expires. 

Step 5 – Train yourself and your team 

Well before the 1 April 2022/23 deadlines, it’s important that you and your team are confident using the new software. It can take some getting used to, so give yourself plenty of time. 

Making Tax Digital FAQs 

If you’ve got a question about Making Tax Digital, hopefully we’ll answer it here: 

What do you need to include for VAT for Making Tax Digital? 

There’s a lot to include for the new Making Tax Digital for VAT rules. Here’s the list from HMRC: 

• Business name and contact details 
• VAT number and details of schemes used 

• VAT and rate on supplies made 
• VAT on supplies received 
• Adjustments to returns 
• Time of supply 
• Reverse charge transactions  

• Daily gross takings (if using a retail scheme) 
• Purchases you can reclaim tax on (if using the Flat Rate Scheme) 
• Value of sales made and total output tax on Gold Accounting Scheme purchases 
• Evidence of multiple supplies made or received on behalf of the business 

Can I still use the spreadsheets I’m used to? 

Yes, but you still need to submit records and returns digitally via HMRC-approved software. If you want to do this, look for software that connects your spreadsheets to HMRC’s system.  

Does Making Tax Digital apply to Corporation Tax? 

Not yet. It may do in the future though, depending on how the VAT and income tax roll outs run.  

Do self-employed people need to comply with Making Tax Digital? 

Again, not yet – but soon. By April 2023, Making Tax Digital will apply to self-employed people and landlords earning over £10,000. When the new rules come in, you’ll need to send an income and expenses summary to HMRC every three months.  

Lots of accountants have already signed their self-employed clients up to Making Tax Digital. These systems let you see income tax as you go, which can help your clients to budget and plan ahead. 

Getting your clients signed up now will also help you prepare for the new rules. To do this, follow the same steps listed above and begin keeping digital records from the start of the accounting period.  

How much does it cost to take out new software? 

This is a question that lots of accountants will no doubt be asking. Taking out new software will be another expense for you. Although the government estimated that getting set up for Making Tax Digital would cost small businesses just £70 spread over four years, the Institute of Chartered Accounts for England and Wales believes it will actually be £1,250. It is not just the software that you need to budget for – it’s also the time spent training your staff and for getting advice if you need it. 

While you get ready for the Making Tax Digital rules, you may find you have less time to spend finding new, valuable leads. That’s where we come in. With Unbiased, you can filter the right enquiries that will get your business to the next level. Join today.