Tax Changes for Small Businesses in 2022

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Tax Changes for Small Businesses in 2022

As of April 2022, small businesses that charge VAT will have to file their accounts through the HMRC Making Tax Digital system. 

It has been over two years since HMRC first introduced the Making Taxing Digital (MTD) scheme for the VAT pilot. Since April 2019, businesses above the £85,000 VAT threshold have been processing their tax returns digitally.

However, from April 2022, business owners who charge VAT with a taxable turnover under £85,00 will need to use Making Tax Digital. Affected businesses should shortly receive letters informing them of this alteration. This change will affect approximately 1.1m small businesses.

Small business owners who are still submitting VAT via the HMRC portal or post will soon have to keep digital records and file VAT through the approved online system. Otherwise, businesses may be fined – an unwelcome addition to the many challenges already facing SMEs.

Ahead of the April 2022 deadline, affected businesses should begin to make preparations for Making Tax Digital. Even for non-VAT registered businesses and landlords, who have a further two years to become compliant with MTD for Income Tax, it’s best to start preparing early.

The following checklist can help small businesses become MTD compliant:

Know your deadlines and what MTD means for you

It is important that businesses research the legislation and ensure leadership teams are up to speed. There’s a lot of useful information, but it can be difficult to get started. It could be worth checking out HMRC’s MTD for VAT page, as it will provide helpful insights to aid businesses, to find out how to apply, how they can sign up, and much more.

It’s also worth noting important dates when VAT returns are due.

If businesses pay VAT in quarterly periods, their VAT deadline is usually one month and seven days after the close of the VAT period. However, there are different deadlines for the Annual Accounting Scheme.

Speak to your accountant or bookkeeper

Small businesses face a number of challenges, so many may not prioritise a new digital tax scheme. April 2022 will come around fast, so now is the perfect time to ask an accountant for help. They can advise you on how and when to go digital.

Accountants and bookkeepers can provide expertise to tackle complicated issues, which small business owners often don’t have time for.

Preparing your mindset for business change

Change is never easy but digital transformation can reduce workloads and improve agility. Any business in the process of implementing their digitisation strategy can use Making Tax Digital as an opportunity to start their digital journey.

Research your software options

HMRC will want a number of digital records – from business name, adjustments to returns, rate of VAT charge on supplies made, and much more. Businesses can choose to use spreadsheets to calculate VAT, but they will need to use compatible software to actually send the information.

Unless you have a legal exemption, HMRC will only accept VAT returns sent using approved MTD software. It’s a great idea to search for a supplier early. This software will pull information from digital records to submit returns, saving time that can be better spent managing your business.

This software could help small businesses optimise processes, start wider digitilisation, and ultimately improve cash flow.

Every business will have different needs, but they should look for the following in their software:

  • Automatically calculates the tax you owe (including VAT and payroll tax)
  • Pulls transaction data straight from the bank, invoicing software, or POS system
  • Updates transactions every day, allowing firms to stay on top of bank reconciliations
  • Creates digital records of paper receipts by photographing them with an individual’s mobile

Some may view MTD as something that needs to be complied with. However, although the change can be daunting, it can also be very positive.

Consumers now want businesses to cater to their digital needs. MTD provides small businesses with an opportunity to grow and digitalise, improving the way they operate and serve customers. Many small businesses may find that Making Tax Digital is a blessing in disguise.

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