4 tips for accountants helping small businesses with MTD for VAT

*this content is brought to you by Xero

Accountants play a greater role than ever in ensuring the wellbeing of small businesses. In fact, recent Xero research found that almost half (45%) of small businesses believe their advisor is more important to them than ever.

At a time in which the trading environment is extremely harsh it’s no surprise that SMEs have turned to their advisors to help tackle issues like cash flow uncertainty and stimulus packages. And as we look to the future, there are new government-mandated regulations looming for small businesses as the pandemic-driven restrictions loosen.

That’s right  – we’re talking about Making Tax Digital (MTD). The next wave of MTD requires business owners who charge VAT with a taxable turnover under £85k to comply from April 2022. Letters from HMRC will have hit affected SME doormats (or will do so soon), informing them of this next phase.

Now, hundreds of thousands of these businesses will need to maintain their financial records digitally and file VAT returns through approved software. This is easier said than done for many small business owners, who may struggle with the demands of digital technology.

Accountants will be well aware of the importance of not only guiding their small business clients towards compliance, but in communicating that MTD, and the push towards digitalisation, isn’t something to fear. In fact, MTD can give small businesses the opportunity to accelerate innovation and drive efficiencies through the adoption of digital tools.

For advisors looking to ease this journey for their SME clients, here are four tips.

HMRC services have changed

With MTD, the online portal through which accountants list the clients they want to submit tax information for is changing. Now, HMRC has introduced the Agent Services Account, which is intended to house all relevant tax administration in one place.

Without signing up for this account, accountants will be unable to register their MTD clients and work on their behalf. The only potential issue for accountants during this migration, however, is in ensuring their anti-money laundering (AML) checks are up to date, because advisors that set up an agent services account for MTD for VAT now must confirm they have AML supervision.

Whether an established accountant or someone doing a friend a favour by submitting their tax return (don’t we all need friends like this?), everyone handling tax for a third party will have to abide by this new rule.

With this in mind, accountants should absolutely confirm they are fully paid up, whether that’s fees to their AML supervisory body or directly to HMRC.

Communicating client deadlines

While some small businesses may have a firm grasp on the key dates and deadlines of MTD, it’s probably safer to assume they’ll be relying on their advisor to offer those vital reminders. While accountants will always offer themselves as the first line of response to any pressing questions, HMRC’s MTD for VAT page and Xero’s own SME resource page also contain a host of useful insights.

In order to avoid becoming an MTD for VAT alarm clock, advisors can encourage clients to diarise the key dates, avoiding a late push to ensure VAT returns are delivered digitally on time. HMRC’s free VAT payment deadline calculator can also help ease this process. Finally, it’s worth communicating that availability to provide support in the lead up to the deadline may be diminished, with a large number of clients requiring help during this period of change.

Don’t rush in

Registering for VAT arguably hasn’t been as easy as it could be, and this is still very much the case. Accountants registering their clients for MTD for VAT will find that businesses are now required to verify a number of links via email. Not hugely taxing (ho ho), but it does add another step in an already convoluted process.

It’s also vital for accountants to copy existing clients for MTD for VAT across from the traditional online portal to the Agent Services Account. This can only be done once they have completed their obligations with non-MTD VAT – submitting their non-MTD VAT returns, and paying any liability.

With this in mind, it’s imperative that advisors take the time to establish who is handling the registration process, as well as who has access to the account, and then transfer clients across before they begin their MTD for VAT journey.

Help clients see the upside of digitalisation

It should be no surprise that many small businesses will view MTD for VAT as yet another obstacle to overcome. But it should not be seen as a necessary evil – but a means of making their businesses more efficient through digital tools.

Accountants and other advisors can help SMEs overcome their trepidation and understand the potential of digitalisation. For businesses that weren’t considering digital adoption in the near future, this might give them a push to put the right processes in place and see real enhancements.

A good first step is in advising small business clients on the MTD technology options available to them. While businesses can turn to spreadsheets to calculate or summarise VAT transactions, there is the HMRC-approved list of software they’ll need to adopt to actually submit information to HMRC (unless they have a legal exemption, that is).

While the level of choice may seem overwhelming at first, helping clients cut through the slew of options to find the right one for them can be an important form of support.

With 2022 now very much underway and MTD for VAT looming large, small businesses may feel the pressure of compliance. But with strong guidance from their accountants, this can become less of a hurdle, and more of an opportunity for future growth.

If you’re not yet a Xero partner, visit our Xero Partner Programme page where you can find out more about becoming a partner. Make MTD for VAT a breeze with Xero, get ready with free resources and webinars and gaining access to resources for your practice.

*this content is brought to you by Xero

Xero offers a cloud-based accounting software platform for small and medium-sized businesses..

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