MTD for VAT with Xero

As many of you will be aware, from 1 April 2022, all VAT-registered businesses must sign up for MTD, including those that file NIL returns.

There is no soft-landing period, however HMRC are revising their penalties based on a points system but it hasn’t been announced yet.

You can apply for an exemption if you qualify for any of the reasons below: 

  • Your business is run by a religious society whose beliefs are incompatible with the requirements of the MTD regulations. This includes religious beliefs that object to using computers, software or the internet 
  • It is not reasonably practical for you to use for you to use computers, software or the internet due to age, disability, where you live or any other reason
  • You are subject to an insolvency procedure

To apply for an exemption, you will need to write to HMRC, in the meantime you need to continue filing VAT returns the way you usually do.

Before you sign up to Making Tax Digital for VAT you will either need: 

  • A compatible software package that allows you to keep digital records and submit VAT returns
  • Bridging software to connect non-compatible software (like spreadsheets) to HMRC systems

Find out more here

If your business keeps paper invoices/receipts, you can disregard them providing you have the scan of the exact copy. Apps such as Hubdoc, Autoentry and Dext (formerly Receipt Bank) save invoices/receipts in the cloud, enabling you to operate a secure paperless system.

Businesses in the retail sector do not need to record individual transactions for MTD, the daily takings total is sufficient. Similarly, if you have numerous petty cash transactions, these can be bundled together.

The next step with MTD is that from 1 April 2023, self-employed workers and landlords who declare an income of over £10,000 via Self Assessment tax returns must register for Making Tax Digital for Income Tax Self Assessment.