5 Benefits Of Using Xero For MTD

Robyn Jones

In this article, I’ll run through 5 benefits of using Xero for MTD. Such as, how easy it is to submit your digital VAT returns. Or even how simple Xero makes it to electronically store all of your paperwork on the Cloud, and much more.

Xero logo on the benefits of using the software for MTD

For starters, when MTD was introduced in April 2019, thousands of business owners like yourself were looking for a compatible software that was easy to use for digital VAT returns following MTD guidelines, and that’s when Xero stepped in.

Xero offers an intuitive, yet comprehensive software that allows integration of multiple Apps that you may already be using. This is why we believe Xero is the heads above the rest.

Keep reading to learn the 5 benefits of using Xero for MTD.

Table of contents:

You Can Go Paperless!

As we all know, HMRC asks business owners to keep all business records for 6 years from the last year-end, this means as a business owner it may be hard to keep track of paperwork.

One of the main benefits of using Xero to store paperwork and submit your MTD VAT returns is that you can attach all your purchase and sales invoices on your Xero software and dispose of all the loose paperwork and receipts you have lying around at home or in the office.

All invoice attachments can be viewed with the click of a button. If you, a customer, supplier or HMRC want corresponding paperwork that relates to any of your transactions you will simply be able to select and download the original.

Another benefit of going paperless and keeping all your records in Xero means that everything is easy to find and you can search for within seconds.

You Have Visibility Of All Historic MTD Returns

On your Xero accounting software under your VAT heading you can clearly and easily see full visibility of all your previous MTD VAT returns.

You can look who submitted the return, what date the return was submitted and exactly how much you are due to pay or HMRC are due to pay to your business. If you are not using Xero you can also see this if you have HMRC online logins for VAT services, you can sign up for this here on the gov website: www.gov.uk.send-vat-return

You Can See Any New VAT Updates Published By HMRC

A third benefit to using Xero as your accountancy software for submission of your VAT returns is that the VAT tab includes all new releases and updates published by HMRC.

The information is shown at the top of the screen and is there to allow the business owner to read through any information before you submit anything to HMRC.

For example, all new information about deferred payments was published here and the change from 20% to 5% on certain goods relating to the hospitality sector has been published. Xero provides you with a snapshot of any new information that may affect your VAT return before you get a chance to submit it.

Not only does this improve your knowledge of the always updating VAT guidance given from HMRC but it ensures that the information you are submitting to HMRC is correct and accurate.

Xero Knows When Your VAT Return Is Due Even If You Do Not

Another massive benefit to using Xero for your MTD needs is that you will be able to see exactly what is due and when.

Xero has fantastic visibility so you are aware if anything is overdue, it will be shown in red on your Xero VAT tab and will tell you exactly how many days your return is overdue for submission.

It will also tell you how many days you have left before your next submission is due.

This is a massive help as business owners like yourself may not have the time to keep up to date with all the filing deadlines and submissions that you need to so Xero is there to help remind you. You will avoid late submission fines and be on top of your tax affairs.

RELATED: Get your FREE Xero Health Check here

You Know Exactly What Is Due To And From HMRC

The biggest benefit of using Xero for your MTD is that you can see exactly what you have due to pay and you know exactly when it is due to be paid.

Xero has the functionality to show you the vital information that you want to know.

You will be able to see what you are owed or what you owe to HMRC, the date that it needs to be paid and if you have a direct debit in place, this information will also be available to you so you can avoid making multiple payments in error.

Xero easily allows you to be able to see what money you will be paying out in the future or what money will be coming back to you allowing you to plan so that you know exactly where your cash position stands.

There are and have been a range of accountancy software’s that have been introduced or adapted to function with MTD, if you would like further information on this please contact us at Northern accountants or consult the Gov website. More information on MTD can be found here: www.gov.uk/topic/business-tax/vat

What Next?

There you have it, 5 benefits of using Xero for MTD.

I hope that you’ve gained enough valluable information from this article to make an educated decision on what software you should be using.

In our opionion, Xero is the best software for business owners, big or small.

If you need more advice or information on Xero, and how you can use it, please don’t hesitate to get in touch today using the links below.

How To Post Your Payroll Journal In Xero

By Robyn Jones

Step 1:

To post your payroll journal in Xero or any accounting software you will need a report to show your finalised payroll.  This could be from your payroll software or a report given to you by your payroll provider or accountant.

Most payroll providers and payroll software such as bright pay will have integrations set to your accounting software that will be able to post the journal for you.

Step 2:

To post the journal in Xero you will need to access Xero > Accounting > Manual Journals, below is an example of where you need to be on Xero:

Step 3:

In this section of Xero, you can see all journals that have been previously posted and you have the ability to either set up a new journal, import a journal or produce a repeating journal.

For your payroll journal you can either add a manual journal, which will be more useful if your wages are different every week/month and the figures will need to be amended each time.

Importing a journal can be easy to use if you use a payroll facility that can produce journal integrations.

A repeating journal would be appropriate for when the payroll figure do not change on a week by week or month by month basis and stay the same all year round.

Step 4:

Once you have decided which type of journal is most appropriate to use you can select and taking the figures from your payroll report or information provided by your accountant or payroll provider, you can enter them into Xero as below:

Here the first thing you will fill out is the description of your journal so you can refer back to the journal and find what the journal entry relates to.

Secondly you can enter the date of the journal, which in this case will be the period relating to the wages, in the example above I have used the 30th of September 2020.

In this example the wages journal only consists of gross pay and net pay.  Gross pay is posted to an expense nominal in the profit and loss and the net pay is posted to a liability account to sit in the balance sheet until the amount is paid to the employee.

If the journal you are completing is more complex than the journal above please do not hesitate to call Northern accountants and someone will be happy to go through this in detail.

How To Allocate Multiple Payments On Xero To One Invoice?

By Robyn Jones

There are two ways to pay off an invoice in Xero using multiple payments.

  • The first way is to do it directly through the bank if the payments have come from a bank account.
  • The second is to pay it directly to the invoice. This method can be used if payments did not come from a bank account.

The first method of paying off invoices using multiple payments is directly from the bank.

As usual, you would select the find and match tab on your payment in the bank.

Once you have searched and selected the invoice you would like to pay, the word ‘split’ will appear before the amount and here a new tab will appear for you to enter the amount you would like to pay off the invoice.

When you have made a payment against the invoice you will have the outstanding amount left on your ledger that is still to be paid.

The second way you can pay or part-pay an invoice in Xero using multiple payments is using the payment box at the bottom of the invoice.

All you will need to do is enter the amount, date, payment method and reference as below:

What Next?

For more help using Xero, don’t forget you can contact Northern Accountants for all of your Xero software needs. Such as training, technical support, or even business and accountancy advice, we’re here for you.

Making Tax Digital (MTD) | Your Questions Answered

By Robyn Jones

Gone are the days of manual cash books and excel spreadsheets. Cloud Accountancy is now the way forward.

So what is MTD exactly?

Making Tax Digital is now a legal requirement for VAT. It basically means that paperwork being filed to HMRC to file VATbusiness details is now phased out.

All of your documentation (where VAT is involved) needs to be done via a system that is MTD compliant.

Continue reading to learn more about MTD, and how this might affect your business…

When Was MTD Introduced?

Making Tax Digital was first introduced by HMRC in April 2019. And if you, like so many other business owners still need advice on what action you need to take. This article will cover all the basics you need to know.

We’ll cover; what Making Tax Digital is, is it something you should be signed up for, setting up for MTD, submitting via MTD, MTD compatible software’s and what will work best for your business.

What Is Making Tax Digital?

Making Tax Digital or MTD is the way your VAT returns are sent and submitted to HMRC.

Making tax digital is exactly what it says. It means you must submit your returns using a making tax digital compliant software. Rather that manually entering data to the HMRC portal.

Why Was MTD Introduced?

HMRC introduced MTD to make submissions of returns more automated and electronic. Thus making the process more efficient for both the taxman and the business owner.

The policy is designed to make it easier for the person preparing and submitting the returns. It also ensures everyone can keep on top of their tax affairs.

Why is this now in place? This is because HMRC are trying to reduce human error. Furthermore, they are aiming to improve the quality of information they received from business owners across the UK.

Do I Have To Submit My VAT Returns Using MTD?

Businesses with a turnover of over £85,000, who are VAT registered are now required to adhere to the MTD policy by preparing and keeping digital records, and using compliant software to submit to HMRC.

As Northern accountants are specialists in cloud accountancy the transition to MTD for our clients was very simple.

If you need support with any MTD queries please give us a call or follow the link to the Gov.uk website for more information: Gov Making Tax Digital

What If I Am Below The VAT Threshold?

If you are a VAT registered business and have a taxable turnover of under £85,000 you can voluntarily sign up for MTD however this will be mandatory by April 2022, unless you de-register for VAT prior to this date.

Is MTD Just For VAT?

MTD has currently only been implemented for the submission of VAT however HMRC is set to introduce this into other taxes.

Businesses with an income of over £10,000 will need to be MTD client for preparing and submitting their income tax returns for their next accounting period starting on or after the 6th of April 2023.

At Northern accountants, all the client we complete bookkeeping for are already using an MTD compliant software to prepare their records.

I have included a link to a list of compatible software that can be used in compliance with MTD, including Xero, which is the software dominantly used at NA: Gov Compatible Software for Making Tax Digital

What If I Am Not Signed Up For MTD?

If you are not signed up for Making tax digital but you now know you should be you can still sign up using this link: Gov Sign Your Business for Making Tax Digital

Although Making tax digital has become law, those businesses who have missed the deadline set by HMRC to sign up will not yet be penalised if they have continued to submit and pay their VAT returns on-time.

What Next?

If you have not signed up for MTD already and your business has a taxable turnover that is over the VAT threshold you must now sign up for Making tax digital.

If you need support with this or just some general advice Northern Accountants are here to help.

Your Guide on VAT Registration for Businesses

By Robyn Jones

If you’re a business owner, and you’re looking for advice on whether you should be VAT registered or not. This guide will cover everything you need to know about VAT registration for businesses.

We’ll cover what VAT scheme is most suitable for your business, how to apply, the different VAT schemes available, and VAT payment deadlines – and how to do a VAT registration check.

Continue reading to learn more…

Should my business be registered for VAT?

There are two basic reasons for your company (or business) to become VAT registered with HMRC:

  1. You register voluntarily – if it is more beneficial for you to be VAT registered than not. More on this in just a second.
  2. You have reached the government turnover threshold and must register. The current threshold to become VAT registered is £85,000.

If your business has a Turnover of this amount or above. For any consecutive 12-month period. You’re obliged (in the U.K) to register for VAT and submit regular VAT returns.

This means, if you supply or purchase vatable goods or services, you must provide details of any tax deductions to the HMRC.

If your company has a turnover of below £85,000, you can still be registered for VAT. This is beneficial if you are looking to trade with larger VAT registered businesses. Why? This is because other businesses will be able to claim VAT on any vatable goods or services sold by yourself.

Another reason you may choose to voluntarily register for VAT is because the goods or services you sell are zero-rated – or exempt from VAT.

An example may be if you owned a business selling Aircraft repairs and maintenance. The business would not have to charge any VAT as this is a zero-rated supply.

However, you’d still be able to claim back any VAT on expenses where VAT has been charged – resulting in a refund from HMRC. RELATED: Why switching to Xero made VAT return much easier for busy surveyors

What different VAT schemes are there, and which are most suitable for my business?

Accrual Scheme:

The most common VAT scheme used by business owners to prepare and submit their VAT returns is the accrual or standard VAT scheme.

This scheme takes the VAT at 20% or 5% directly from the invoice or receipt the date of the invoice. This also includes the VAT on sales invoices, minus the VAT taken from any expense invoices that will be due to HMRC.

Cash Accounting Scheme

Another popular VAT scheme used for companies with in-frequent payments, or longer payment terms, is the cash accounting VAT scheme.

This scheme allows you to take the VAT from the date of payment which has either been received or made. This is very beneficial for cash-flow because it allows VAT payments (or rebates) to be calculated on a real-time basis. For example; With standard VAT, if you sold goods to David Smith for £10,000+ VAT, you would pay the VAT to HMRC based on the period you raised the invoice. Under the cash accounting scheme, the VAT relating to this invoice would only be payable when you received payment from David Smith.

To be eligible to enter this scheme, there are certain thresholds you must be above or below. For more information surrounding the different thresholds for entering the VAT cash accounting scheme, the HMRC have published a basic overview here: Gov.uk VAT Cash Accounting Scheme Eligibility

Annual Accounting Scheme

The Annual accounting scheme is not as commonly used as the above schemes. Most VAT registered businesses will submit returns to the Tax Office quarterly or monthly.

The VAT Annual Accounting scheme allows you to submit one return per year. However, you must still pay four instalments throughout the year based on a rough figure from previous years. With a final amount to make up any difference, if any.

To clarify; Advance payment towards the annual bill must be made either based on an estimate of the VAT that the HMRC thinks you’ll owe on previous returns.

Flat Rate Scheme

This scheme is used for smaller businesses who specialise in specific goods. Business types are given flat rate percentages directly from HMRC. The percentage of gross turnover is the amount paid to HMRC.

For example, the flat rate percentage for an advertising business is 11% for the current year.  If you were to invoice a customer £20 + VAT (£24). The flat-rate payment would be 11% of the £24, equalling £2.64.

For more information regarding this scheme, check the HMRC guidance by visiting their website: Gov.uk VAT Flat Rate Scheme. Alternitively, get advice from us here at Northern Accountants.

What are the deadlines for paying and submitting my VAT returns?

1. Deadlines

The most important deadline to submitting and paying your VAT bill on time is the 7th of the month. If you are submitting quarterly or monthly VAT returns, your payment and return submission will be due exactly one month and seven days after your VAT period.

If you are submitting a VAT return with the period ending the 31st of January 2020, your payment and filing deadline will be the 7th of March 2020.

2. Late Payments

Late submission and payment of your tax bill can result in fines from HMRC. On the other hand, if you are due or expecting a VAT refund from HMRC, there is no deadline to have received this by.

3. Refunds

You will be due a VAT rebate if your VAT input (expenses) are higher than your VAT output (sales). This means, that you’ve either had a higher amount of expenses, or you have zero rates or VAT exempt business sales. More information on zero-rated goods and services can be found on the official government website: Gov.uk VAT Business VAT Rates

4. Paying The HMRC

One simple way to pay the HMRC is to pay your VAT bill via direct debit. This means that HMRC will automatically take the amount you owe, close to, or just after the 7th of the month. Alternatively, you can make manual payments to HMRC through the Gov website. I have attached a link to their payment page here: Gov.uk Pay VAT

What’s Next?

Registering for VAT has become a much simpler process using the newly updated HMRC website.

Don’t forget, the VAT registration deadlines for payments and submissions will be 1 month and 7 days after your VAT period end date.

To avoid any late filing or payment fines, it is always best to keep your taxes in order.

If you need help in filing or calculating any VAT returns, we are more than happy to offer some friendly advice.

Northern Accountants (Leeds), Olympus House, 2 Howley Park Business Village, Pullan Way, Leeds, LS27 0BZ