What the closure of HMRC’s VAT online portal means for contractors

Making Tax Digital has been slowly rolling out to VAT-registered businesses over the last few years. Under the requirements, eligible businesses must keep financial records digitally, and use MTD-compatible software to submit this data to HMRC.

Since April 2022, the requirement to be digital with HMRC has extended to include any remaining VAT-registered businesses not already following the MTD scheme.

But lesser known, is that HMRC has confirmed that the VAT online account portal will finally switch off at the end of October this year, writes Elizabeth Hughes of The Accountancy Partnership, a provider of online accountancy services nationwide for a low, fixed monthly fee.

When does HMRC's VAT online portal close?

The last date for submitting data through the VAT online portal is October 31st 2022, and the system will be unavailable from November 1st 2022 onwards.

The closure of the online portal leaves businesses with no other option but to use MTD software to make their VAT submissions, or risk facing penalties.

So, what should limited company contractors be doing to prepare for the final stage of Making Tax Digital for VAT?

How contractors can send VAT information when the portal closes

Rather than manually submitting VAT data through your VAT online account, contractors must now keep digital records, and either use Making Tax Digital-compliant software or ‘bridging’ software to make electronic submissions to HMRC. These digital links will replace the old manual method of entering your VAT figures into your online account.

Should contractors use MTD software or bridging software?

In some cases, using bridging software might make the transition to MTD easier. For instance, if you already use spreadsheets to keep your financial records, you can continue to do so, and then use the bridging software to send your data.

Like the name suggests, bridging software quite literally bridges the gap between your digital records and HMRC, to link the two together. Some VAT-registered contractors might find this makes the transition simpler, but ideally bridging software should only be seen as an interim solution.

Bridging software for MTD purposes: three key considerations

• Bridging software by itself doesn’t fulfil all of the requirements of Making Tax Digital, so contractors relying on it will still need to use a compliant way of recording their bookkeeping digitally.
• Using bridging software is really an additional step in the process of recording and reporting your VAT to HMRC. You may find yourself needing to spend time on exporting and reformatting data ready to upload it with the bridging software. It isn’t really in the spirit of MTD as the beacon of convenience it’s supposed to be!
• Because it’s not an end-to-end solution, using bridging software means that you’re also likely to miss out on the other benefits of using fully-compatible MTD software.

What’s good about using MTD VAT compatible software?

Contractors facing the imminent closure of HMRC’s VAT portal might decide to make their VAT submissions using bridging software as a temporary measure. But in the name of efficiency, it’s certainly worth looking into the MTD-compliant software that’s available.

A list of MTD-approved software providers is available from gov.uk, which is a good starting point for making sure those Google search results are the real deal!

Beware software providers claiming to offer MTD for VAT, when really, they’re offering a bookkeeping package which still relies on separate bridging software to make submissions. Yep, they’re unfortunately out there and not altogether transparent about their offering!

MTD features (includes bank feeds)

Features vary depending on the software provider (as does the price), so to get the best deal, and one that’s right for your business, shop around. You might not need to pay for a lot of features that you’ll never use.

In general, it’s worth looking for tools which can reduce the amount of time you spend on bookkeeping jobs. For instance, some providers will link your records directly to your bank account using bank ‘feeds,’ so that your bookkeeping populates automatically using your transaction data. These feeds can cut down on the amount of time spent on manual data entry, and they also mean there’s less risk of typos tripping you up with HMRC. Nobody wants a rogue extra zero causing chaos.

When should I take action?

The sooner the better. The Revenue’s online portal for submitting your VAT return is definitely in its twilight years, and you will need to have something lined up to replace it. Ideally something should be in place before the October 31st closure, giving you the chance to test that everything works before you come face-to-face with a deadline.

Last but definitely not least, HMRC indicates that it will start issuing penalties (along with interest on any late payments) for non-compliance starting from January 2023 – but the current VAT submissions penalties will still be in place before then.