Making Tax Digital for VAT practice preparation guide

As the Making Tax Digital (MTD) for VAT deadline draws closer, many accountants still need to implement a plan of action before it’s too late. This guide will help you prepare your practice and make the most of the opportunities presented by the upcoming changes to VAT return filing.

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“Our practice is achieving great working relationships with all of our clients using FreeAgent. With FreeAgent, we are confident that all of our clients are ready for MTD and able to seamlessly submit VAT returns to HMRC to meet the new requirements.” Teodora Dimitrova, Chart Accountancy ltd

MTD for VAT in brief

From 1st April 2019 businesses with turnover above the VAT threshold will need to store digital records and submit VAT returns via MTD-compliant accounting software. Find out more in our MTD for VAT Q&A.

What does this mean for you?

If your practice and all your affected clients are already using FreeAgent to submit VAT returns there isn’t much that you need to do to prepare. You will need to set up an agent services account with HMRC and, if you’re planning to file VAT returns on your clients’ behalf, ensure they have given you permission to do so. In FreeAgent, the VAT return process will remain familiar.

If, however, you don’t know which of your clients are affected or you have affected clients who are not yet using MTD-compliant accounting software (or simply don’t know where to begin) – don’t worry! The steps below will take you through everything you need to do in order to prepare for the deadline.

Getting ready for MTD for VAT

1. Make sure your team is up to speed

Your existing clients are likely to be concerned about MTD, while prospective clients will want to know that your practice will be able to keep them compliant in the digital era. Ensure that you and your staff can answer these questions and address clients' concerns about MTD.

Our MTD for VAT Q&A answers the most common questions that we’ve been asked over the past few months and will stand you and your team in good stead for reassuring your clients:

Read the Q&A

We also have a collection of informative Making Tax Digital guides and resources for both your team and small business clients on our website:

Get the guides

In the run-up to the MTD for VAT start date, we’re hosting a series of webinars to keep you informed about the latest developments. These sessions will include useful tips from accountants who are well versed in accounting software. Follow the link below to watch the latest webinar in the series.

MTD webinar: How I’m preparing my practice for Making Tax Digital with Tomasz Wiadrowski

2. Segment your clients

Not all of your clients will need to adapt for MTD for VAT so you’ll need to segment your client base in order to work out who will be affected. First, identify all your clients with a turnover that’s above the VAT threshold. It’s also a good idea to identify which of your remaining clients may be approaching the VAT threshold soon and are therefore likely to be affected. If any of these clients are using FreeAgent for VAT return filing already, keep them in a different segment.

You also need to know when each client’s VAT period end is in order to know when they have to start complying with MTD. Their first MTD VAT return is due for the quarter that begins on or after the 1st April 2019.

You may choose to reassure clients who are not registered for VAT that the upcoming MTD for VAT changes don’t apply to them. However, it is still a good opportunity to nudge them towards using accounting software to make both your lives easier and to prepare for the full MTD rollout in the future.

Your affected clients

Once you know which of your clients will be affected, you need to review their current systems to make sure they're ready for their first MTD VAT submission. This will help you to tailor your client communications. For example, if a client is using FreeAgent, they won’t need to do anything as our software will be ready in time so you can simply send a reassuring message. On the other hand, if you have affected clients who are not yet using MTD-compliant accounting software, you need to get them on accounting software before the start date so the message you send them will be different.

3. Contact your clients

After the segmentation steps outlined above, you’re likely to have four main groups of clients:

  1. VAT-registered clients who are already using FreeAgent
  2. VAT-registered clients who are not yet using FreeAgent or compliant accounting software
  3. clients who are using FreeAgent but are not VAT registered
  4. clients who are not yet using FreeAgent or compliant accounting software and won’t be affected by MTD until at least 2020

You’ll need to send each of these groups a slightly different message. To help you get started, here are some suggested messages that you can copy and paste into your emails:

Group 1: VAT registered clients who are already using FreeAgent

Message: “You’ll need to store records digitally and submit MTD VAT returns for your first VAT quarter following 1st April 2019. Don’t worry - as you’re already using FreeAgent, all the relevant updates will be made for you and there’s nothing you need to do.”

Email template:

Making Tax Digital - we’ve got it in hand!

Dear [client name],

As you may be aware, HMRC is rolling out Making Tax Digital for VAT in April 2019. As a FreeAgent user, you’ll be fully compliant with Making Tax Digital and you won’t need to do anything differently.

If you’ve got any questions, please give me a call.

Best wishes,

[your name]

Group 2: clients affected by MTD for VAT who are not yet using FreeAgent or compliant accounting software

Message: “You’ll need to store records digitally and submit MTD VAT returns for your first VAT quarter following 1st April 2019. You’ll need to start using accounting software as soon as you can in order to be compliant, but don’t worry - we’re here to help!”

Email template:

Making Tax Digital is coming!

Dear [client name],

As you may be aware, HMRC is rolling out Making Tax Digital for VAT in April 2019. As a [business type] with a turnover above £85,000, you’ll be required to comply with Making Tax Digital for VAT by 1st April 2019.

In order to stay compliant you will need to start using accounting software. This will not only keep you in line with HMRC’s new regulations but will also make it far easier to share your business figures with us.

We recommend FreeAgent as the accounting software package for your business as it’s very easy to use. I’d love to invite you into the office or set up a 30-minute call so I can show you how FreeAgent works. What day/time would be convenient for you?

Best wishes,

[your name]

Group 3: clients who are using FreeAgent but are not VAT registered

Message: “HMRC is rolling out the first big update to Making Tax Digital in April 2019 which will affect VAT-registered businesses. Don’t worry - as you’re not VAT registered there’s nothing you need to do just yet. As you’re already using FreeAgent, all future MTD updates will be made for you.”

Email template:

Making Tax Digital - we’ve got it in hand!

Dear [client name],

As you may be aware, HMRC is rolling out Making Tax Digital for VAT from next April. As you’re not VAT registered, Making Tax Digital won’t affect you just yet.

HMRC is planning to digitise income tax and corporation tax by 2020 at the earliest, but as a FreeAgent user you’ll be fully compliant with the new Making Tax Digital legislation when it rolls out.

If you’ve got any questions, please give me a call.

Best wishes,

[your name]

Group 4: clients who are not yet using MTD-compliant accounting software and won’t be affected by MTD until at least 2020

Message: “You’ll need to store records and submit tax returns digitally when the government’s Making Tax Digital initiative rolls out. This won’t be until 2020 at the earliest, but you’ll need to start using accounting software before then in order to be compliant. Don’t worry - we’re here to help!”

Email template:

Making Tax Digital is coming!

Dear [client name],

As you may be aware, HMRC is rolling out Making Tax Digital over the next couple of years. As a [business type], you’ll need to comply when the new legislation rolls out. HMRC has suggested that this could be as soon as 2020.

Although it seems a while away, we’d like to set you up on accounting software as soon as we can so that you’ll be ready when Making Tax Digital comes into effect.

We recommend FreeAgent as the accounting software package for your business as it’s very easy to use. I’d love to invite you into the office or set up a 30-minute call so I can show you how it works. What day/time would be convenient for you?

Best wishes,

[your name]

4. Educate your clients

Your clients might not know much about MTD - or accounting software - so once you’ve let them know about the legislation, it’s a good idea to start educating them about it.

The easiest way to do this is to let them know how accounting software will benefit them. You could focus on benefits such as control over finances, recurring invoices, 24/7 access to data and useful reporting features.

Explain to your clients that learning how to use the software now - rather than waiting until the last minute when it becomes compulsory - is a good investment of time. Acting quickly will give them (and you) more time to sort out any issues together.

To help you get the message across, we’ve created a range of resources specifically for small businesses that you can use on our Making Tax Digital hub.

5. Find a software solution

For all your clients not using FreeAgent or a suitable alternative for MTD, you need to find an accounting software package that suits their needs. Here's why one of our accountant partners has chosen FreeAgent to help his practice prepare for MTD for VAT:

“I have chosen FreeAgent because, most importantly, it is very easy to navigate and understand; it has clear layout, friendly graphic design and it does what it is designed to do. It is also flexible, so even for more demanding entries or transactions there is always a way to work it out. Even the best software on the market will be useless if the end user does not know how to work with it. I found FreeAgent the most user friendly and therefore easiest to learn for my clients. By choosing software that is easy to learn it helps me to save that time as training becomes quicker. Therefore FreeAgent is my preferred accountancy software and I recommend it to my clients.” Tomasz from SAFI Advisory

6. Set up an agent services account with HMRC

The agent services account is different to your current Government Gateway account and is the one you’ll use to access the majority of HMRC online services when Making Tax Digital rolls out. This is the account that you’ll link to FreeAgent or your chosen accounting software in order to comply with MTD.

In most cases, in order to subscribe a client to MTD with an agent services account you’ll need their:

  • VAT registration number (VRN)
  • Company registration number (CRN)
  • National Insurance number (NINO)

You can set up your agent services account here.

When MTD comes in to effect, your affected clients will have to confirm that they can be added to your account from their own HMRC online account. You’ll be able to send them an invitation to do this. New clients and clients who have not yet given permission will also have to authorise you to submit returns on their behalf.

It’s a good idea to make sure your clients have valid Government Gateway credentials ahead of time to save you chasing them up at the last minute.

7. Reconsider your pricing

Making Tax Digital is not only a fantastic opportunity to bring on new clients, it’s a good time to update the services you offer and review your pricing. According to our research 37% of accountants are planning to do just that.

Our research suggests that most accountants will move towards charging a monthly rate. This is perhaps unsurprising, as monthly rates arguably offer greater transparency and are easier for clients to understand and compare against other services. In addition, monthly fees are easier for practices to manage and relieve staff of manual invoicing and billing tasks.

In a recent webinar Tomasz Wiadrowski of SAFI Advisory gave us his top tips for pricing in the Making Tax Digital era. He recommends a periodic review of prices to ensure your clients are billed fairly based on their size and the services they use. Tomasz and the team at SAFI have set up an internal system to review their prices quarterly.

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