Making Tax Digital (MTD) for VAT Returns | How to Set it up in Xero Accounts

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I’ve been meaning to write this for some time as I’m sure it will be helpful for so many bloggers who are VAT registered either as a sole-trader or through a limited company. If you are unfamiliar about VAT and need to learn the basics about the VAT threshold, what software to use and how to set it up, then first read my Bloggers Guide to VAT Accounting.

For those of you who have been using digital accounts packages such a Xero for a long time, you may already be familiar with submitting your VAT returns online using this type of software. This blog post will explain exactly how to setup ‘Making Tax Digital (MTD)’ in the Xero accounts software.

Making Tax Digital (MTD) has gone live last month APRIL 2019, which means that any VAT tax return sent from this date forward needs to be using the MTD service. Please note that MTD is a new service from the HMRC which you have to register for, if you’re not sure if you have registered, the chances are you haven’t.


STEP 1: SIGN UP FOR MTD for VAT with HMRC

Before you can use the Xero Making Tax Digital VAT return, you’ll need to apply with the HMRC, this is done online and usually takes between 48-72 hours to get completed. You’ll receive an email from the HMRC to let you know that everything has been setup correctly (do not submit your VAT return until you have confirmation).

The VAT threshold at the time of writing for sole-traders and limited companies is £85,000 (please note that this is a monthly rolling amount and NOT per financial year). If your turnover for any 12 month period hits over £85,000 then you need to register for VAT or the HMRC may automatically register you.

Before you sign up, make sure you have the below:

-       Making Tax Digital (MTD) compatible software such as Xero.
- Information about the business you’re signing up.
- Your Government Gateway user ID and password.

Use the below URL to sign up for MTD:

https://www.tax.service.gov.uk/vat-through-software/sign-up/have-software

Once you have applied for MTD, wait for the confirmation from HMRC via email, then proceed with the below (if you are using Xero). If you are using other accounts software such as Quickbooks or Sage, then you’ll need to follow their documentation.

 

STEP 2: CONNECT YOUR SOFTWARE TO HMRC FOR VAT RETURNS

Before you start the configuration of the software make sure you have the below to hand:

-       The confirmation email from HMRC saying that you have been moved over to the MTD service.
- Check your VAT number in your Xero Financial Settings is correct. (Settings > Advanced Settings > Financial Settings)
- Your Government Gateway user ID and password.

You’re now ready to setup MTD in Xero, follow the steps below: 

  1. Log in to your Xero accounts software.

  2. In the Accounting menu, select the option VAT Return.

  3. Click Set up MTD for VAT in Xero.

  4. Read the information then click Continue after signing up. This is just warning you to complete step 1 above before continuing.

  5. Click Connect to HMRC.

  6. Read and click Continue.

  7. Enter your Government Gateway user ID and password and then click Sign in.

  8. Read and click Grant authority.

You are now setup for MTD using Xero and will receive the below successful prompt:

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STEP 3: REVIEWING MTD FOR VAT IN XERO

In Xero, click on Accounting then VAT Return, you’ll now see something similar to the below:

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And on your Xero Homepage Dashboard, you’ll get a handy reminder of when your VAT returns are due:

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If you would like more information on using MTD for VAT in Xero then this is a great article from Xero themselves that explains everything to do with VAT Returns.

https://central.xero.com/s/article/Understanding-your-VAT-overview

 

 

How I Invoice Brands and Chase Late Payers: Tips for bloggers

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'Just a friendly nudge'. 

That's my opener when I'm chasing brands for overdue invoices. It's code for 'hey pal, remember me? yeah I'm the schmuck that worked his ass off for a whole month peddling your crap. How about you pay me.' 

Maybe I've seen Casino too many times. Remember that scene where Pesci tells that Banker he wants his money back? Well I'm never far from that level of resentment when it comes to chasing invoices. 

The dichotomy of it all, is that we have to chase them in a polite 'excuse me, excuse me, I'm British', kind of way because of the following reasons; 

  1. We don't want to sound desperate for cash as it looks like we're on our last legs and undermines our bartering power for the next commission. 'He was gagging for that £100 payment last time. Felt like he chased us to the ends of the earth, bet he'll do this job for £50'. 

  2.  We don't want to appear pushy as we want repeat business and want to maintain a good professional working relationship. 

  3. We're naturally too polite and far too good willed. 

I know a lot bloggers and lifestyle magazines have different invoicing policies. Some demand payment upfront before publishing. Others demand payment before they even write the feature. 

I'm quite happy to give brands the standard 30 days, which I believe is fair to both parties. The law for business transactions is 60 days, which is far too impractical for independent businesses that depend on cash flow for survival. Yes you can demand interest on late payments, but the rates are small beer and only compound the issue. 

Imagine if you were owed £1000 by a company like the rates suggest on the Government website. Technically that company can delay payments for nearly another 2 months at the fee of only £11.50. 

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What can you do if a client or brand doesn't pay you? 

The reason why some of these rates and laws feel so draconian is because the Government legislative has not been updated in the last 6 years. The below is also taken from the government website. 

"Amended late payment legislation comes into force on 16 March 2013, implementing European Directive 2011/7/EU on combating late payment in commercial transactions." 

What happens when clients don't pay me? 

I give them every chance. I sometimes walkaway if the pay is modest, I don't look over my shoulder too much. However, one of the bonuses of building a pirate ship is that I get given a megaphone to use over the internet. 

If I know someone else has also been duped by a company, I'll call them out and draw as much focus on their erroneous doings as possible. 

Last summer I was owed a handsome sum of money buy a company, which was a creative content platform for brands and agencies. The CEO did a runner, and lots of influencers were out of pocket. 

My advice on chasing brands for payment? 

Give them the 30 days. Email them with something over than a demand for payment such as.. 

'Hi XXX

Just a quick note to say how great it was working with your team and getting to know your brand last month. Here are the stats from the campaign in case you wanted them. Also I've attached a few extra images from the shoot you may not have seen. Please feel free to use them on your social channels'. 

That normally prompts a response. You want to make sure there’s someone there on the other end of the phone before you start demanding your money back. Sometimes an email like that will trigger them into action. 

If you don't get a reply or a payment, in the next email I'd suggest this. 

'Hi XXX 

Glad you like the photos, I look forward to working with you on the next campaign. Any chance you can give your accounts team a nudge and let me know when I can expect payment for the invoice I submitted last month. I've attached again for their reference'. 

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I’ve attached a copy of my invoice so you can see a working template. 

Hopefully that should do it, and people will want to work with you again in the future. 

BE WARNED 

I made this mistake once of hounding a PR guy for a payment. They were acting as a 3rd party for a clothing brand and the reason why I wasn't getting paid was because I had put the wrong name on the invoice. 

I subsequently had a big fall out with both the PR team and the brand and it took a lot of lunch dates and ass licking on my part to get back in their good books. 

So make sure you have all the details on the invoices correct before you send them out and start threatening to come down there and crack their heads wide open in front of everybody. (Really Joe Pesci says it so much better). 

 

A Bloggers Guide to VAT Accounting | Making VAT Digital for Sole Traders

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The blogging industry is relatively new, full of individuals who have never run a business before or even worked as a sole trader. There’s little support & resources when it comes to best practices with invoicing, accountancy, tax etc, so today I’m going to give you a basic guide to VAT accounting. When working for a company, everything is just taken care of. Your NI contributions are taken from your salary, as is Income Tax via PAYE and you just get a payslip at the end of the month which equals the amount you get paid into your bank account…it’s a nice way to live! I’ve been a business owner with Hawkins & Shepherd for over 5 years and a sole trader with my main income coming from blogging and creating social/digital content for about 4 years.

So today I’m talking about VAT accounting. This is simply charging VAT on invoices for work you have completed and claiming VAT back against purchases you have brought. Please Note: this is separate from your self-assessment end-of-year return, which you pay income tax.

Making tax digital for VAT will come into effect from April 2019, so from that date, businesses with a turnover above the VAT threshold (currently £85,000) will have to submit their returns through Making Tax Digital (MTD) software.

 

Are you VAT registered? Do you need to be VAT registered?

Regardless if you are a Limited Company or a Sole Trader, you have to register for VAT if you or your business turns over £85,000 during a 12 month period. Of course you can register voluntarily even if you do not reach this turnover if it suits you financially.

If you are VAT registered you will need to charge VAT (currently at 20% in the UK) on any sales invoices for work completed. You can also claim back VAT on any purchases that have VAT applied, such as IT Hardware and camera equipment. Please note that you can not claim back tax-exempt items such as postage, bank fees and purchases outside of the EU. Always check your receipts on goods you have brought; if VAT is charged, you can claim it back, if it isn’t you can’t.

As a business owner, you are responsible for keeping track of your income and forecasting when you’ll hit the £85,000 turnover limit. Please note that this is a 12-month rolling calculation and NOT a calendar year or financial year.

As a blogger, I was initially worried about going VAT registered because I was concerned that the brands wouldn’t work with me because my fees would increase by 20%. So for example, if you charge £1,000 for some work as a non-VAT registered business, you’ll of course invoice £1,000. Although now you are VAT registered, you’ll invoice £1,200 (£1,000 plus the 20% VAT). You just need to make the PR’s, brands or agencies know that your quotes are exclusive of VAT and that VAT will be applied to the invoice. You should also double-check any contracts are correct before signing them, as I’ve had one or two contracts that have said the amount is inclusive of VAT, therefore the £1,000 quoted will end up being £800 + £200 VAT. On the flip side most businesses that you are invoicing will already be VAT registered, so they can claim back the VAT on their accounts.

 

I’ve decided to register for VAT, so what next?

1.     Register for VAT.

2.     You’ll then receive your VAT registration certificate with your VAT number through the post which you’ll need to submit your VAT returns.

3.     Once you have your VAT number, you need to sign-up to use VAT services online.

 

What accounts software package shall I use?

Well this is entirely up to you, I’ve used Xero for 5 years and have found it easy and intuitive to use. Here are a list of the most commonly used accounts software packages that you can use to make your tax digital.

·      Xero - https://www.xero.com/uk/

·      Sage - https://uk.sageone.com/accounts/

·      Quickbooks - https://quickbooks.intuit.com/uk/

 

How to setup VAT in Xero Accounts Software 

Once you have signed up for VAT and if have chosen Xero, then the below will help you setting up VAT in Xero.

Creating an invoice template with your VAT number

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Click on Settings > Organisational Settings > Invoice settings.

Click Options > Edit.

Edit the invoice options as you wish, the below is an example of the invoice template that I created:

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Setting up your VAT Scheme and Financial dates

Click on Settings > Organisational Settings > Invoice Settings > Advanced Settings.

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Submitting VAT Returns

Make sure you have reconciled all of your bank transactions and sales during the VAT period and then review and submit your return.

You can review your VAT return by using the VAT Reconciliation report. You can submit a VAT return using the VAT Return report.

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