How to set up your practice and clients for Making Tax Digital for VAT

Illustration depicting a map with both FreeAgent and MTD marked out with a path between them.

Making Tax Digital (MTD) for VAT was introduced in 2019. It first required certain VAT-registered businesses to keep digital records and use MTD-compatible software to submit their VAT returns electronically. The scope of MTD for VAT expanded on 1st April 2022 and all VAT-registered businesses are now required to follow these rules.

This guide explains exactly what you need to do to get set up for MTD for VAT with HMRC and submit MTD VAT returns for your clients through FreeAgent.

Setting up your practice for MTD

1. Create an agent services account

Creating an agent services account for your practice will generate a new Government Gateway ID which will give your practice access to HMRC’s MTD services. A practice will only ever have one set of credentials for MTD and you will need to keep hold of any existing Government Gateway IDs you use to access HMRC’s other online services.

If you’ve signed up for the Trust Registration Service (TRS), you may already have an agent services account in place. If this is the case, you don’t need to create a new account; simply log in and follow the steps outlined below.

2. Copy existing client relationships to your agent services account and request authority for new clients

The next step is to log in to your agent services account and add all of your practice’s existing Government Gateway credentials for VAT filing on behalf of clients. This will copy the authority your practice currently has for VAT filing to its agent services account.

If you have multiple sets of credentials, you will need to add them all to your agent services account in order to link the authority for all your existing clients.

You should request authority to file MTD VAT returns on behalf of any new clients directly from your agent services account. Note that these clients must have a Business Tax Account (BTA) in place in order to authorise a new agent relationship.

3. Authorise your MTD-compatible software

Once you’ve successfully created your agent services account, you can use the new credentials you have received to connect your software with HMRC. If you’re using FreeAgent you should:

  • Log in to your Practice Dashboard and navigate to ‘Settings’
  • Select ‘HMRC Connections’
  • Follow the on-screen instructions

Seeing a ‘403 error (Client or Agent not authorised)’ message?

If you encounter a ‘403 error (Client or Agent not authorised)’ message during any part of the setup process, HMRC recommends that you check:

  • that you have agent services account (ASA) credentials in place
  • that you have used the correct agent services account (ASA) credentials to link your MTD software (if this is not the case, you will need to disconnect from the software and then reconnect with the correct credentials)
  • that you have copied your authorisation to file VAT on behalf of the client to your agent services account (as outlined in step 2 above)

4. Switch clients to MTD filing in FreeAgent

If you’re using FreeAgent, the final stage of the process is to switch your clients to MTD filing. To do this, you will need to have added all your clients to the software.

If you’re new to FreeAgent, a range of support is available to help you add your clients to the software smoothly. Our in-house experts will be happy to talk you through the options during a consultation.

Once you’ve added all your clients to FreeAgent, you should then:

  • Navigate to ‘My Clients’ from your Practice Dashboard and select a client’s name from the list.
  • Select ‘Switch to MTD filing’. This will allow you to submit MTD VAT returns from FreeAgent on that client’s behalf.
  • Once the client has been successfully switched to MTD filing, you’ll see a message confirming this.
  • Repeat this process for all your VAT-registered clients in FreeAgent.

Clients with full (level 8) access to FreeAgent can complete this process themselves by following the steps outlined in our Knowledge Base. However, you may prefer to do this on their behalf instead. Clients with lower levels of access will not have the option to do this themselves.

Managing the process

If you have a large number of clients to set up, you might find it helpful to use a spreadsheet to manage the process. Here’s some suggested guidance for doing this:

1. Create a spreadsheet with the following columns:

  • A: Client’s name
  • B: VAT registered? (y/n)
  • C: Authority to file VAT? (y/n)
  • D: Set up for MTD VAT filing in software? (y/n)

2. Obtain a list of your clients and enter their names into Column A of your spreadsheet.

3. Work through column B, marking up which of your clients are VAT registered.

4. Work through column C, indicating which of your clients you have authority to file VAT on behalf of. If you don’t have authority for a client, you can request it from your agent services account. Alternatively, the client can file their own VAT returns under MTD (in FreeAgent they need level 8 access to do this).

5. Update column D when you set a client up for MTD VAT filing in the relevant MTD-compatible software or when a client does this for themselves.

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