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What the MTD for VAT portal closure means for your clients

17th Oct 2022
Brought to you by
xero

Xero is an easy-to-use platform for businesses and advisors.

Save content
Have you found this content useful? Use the button above to save it to your profile.

On November 1, HMRC will be closing the old VAT online portal. We break down what this means for your small business clients.

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Xero

You may have received an email from HMRC, explaining that affected clients who haven’t signed up to MTD in time to file their next return by 7 November can still use their existing VAT online account for that return only.

However, all clients must use MTD-compatible software for any returns due after 1 December, if they file quarterly or monthly VAT returns. If they fail to do so, they could face a penalty.

So what does this mean for the small business clients yet to get their ducks in a row, and who may now be scrambling to get compliant before the door slams shut?

Here, we take a look at the MTD for VAT journey so far, how your clients can prepare ahead of the closure, and the future of the legislation. 

Progress report

You’ll have no doubt noticed that the road to MTD for VAT hasn’t always run smooth. While many small businesses were willing to make the digital leap and have found the process straightforward, especially when working with their accountant or software provider, others have resisted. 

Whether this is an understandable fear of the size of the change, or simply missing reminder letters dispatched by HMRC, a number of small businesses are yet to comply. This is a shame, as the benefits of digital tax – reducing the number of onerous tasks, greater accuracy and efficiency – have been oft-discussed. 

Now, with the portal’s closure imminent, you will likely find many of these clients turning to you to get them ready, ASAP. 

What this means

While clients may feel that the closure is sudden, there’s a degree of surprise the portal has been open for so long. After all, MTD for VAT was mandated for all VAT registered businesses from April 2022. HMRC have also issued several reminders regarding the impending deadlines.

The timing is unsurprising, too, with the new penalty system arriving in January 2023, and the portal needs to be closed for HMRC to manage this new system.

With the new penalties in place, VAT registered businesses that do not sign up for MTD and file their returns through a MTD-compatible software could be stung with fines. They may need your help to avoid this eventuality, and we’d advise all small businesses to speak to their accountants to make this change with a minimum of fuss. 

If you’d like to share further resources with small business clients, this page on the HMRC site will guide them to the software vendors available. 

Ultimately, time is of the essence for those clients yet to comply. They need to start keeping digital records using MTD-compatible software now, and be prepared to start filing VAT in a different way.

Looking ahead

So, where are we at with MTD? More than 1.8 million businesses have already signed up, so it seems we’re on track to see it become ‘business as usual’ – HMRC’s stated aim. 

Businesses may need to get used to the new software when submitting their first return, but soon enough this will become the norm, with the tax process improved and accountants able to wave goodbye to shoeboxes bulging with receipts. 

Not only that, but many affected business owners who also need to comply with MTD for Income Tax Self Assessment (ITSA) will be able to prepare even further in advance. Your clients who are also sole traders or landlords, and already keep digital records and make periodic updates to HMRC, will be set for MTD for ITSA.

If you or your clients have any further questions around MTD for VAT, check out the Xero hubs for small businesses and accountants

By Stuart Miller, Head of Industry Engagement, Xero

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