Making Tax Digital for Packaging Studios: What Creative Agencies Need to Do Now

As the UK tax system evolves, Making Tax Digital for packaging studios has become a critical part of ensuring VAT compliance. The MTD scheme requires businesses to maintain digital records and submit VAT returns through approved software. For creative agencies, including packaging studios, this means adopting new processes to stay compliant and avoid penalties. If your packaging studio is VAT-registered, it’s essential to understand these requirements and take the necessary steps to meet MTD standards.

At Apex Accountants, we specialise in helping businesses like yours navigate the complexities of MTD for creative agencies. With over 20 years of experience, we guide creative agencies and packaging studios through the compliance process, ensuring your VAT records are accurate, timely, and fully aligned with HMRC’s requirements.

In this article, we will outline the steps packaging studios need to take to meet MTD requirements, using real-life examples and practical solutions. We’ll also explain how Apex Accountants can support you in maintaining smooth, compliant operations. Read on to learn what your packaging studio needs to do now to stay ahead of MTD changes.

What is Making Tax Digital (MTD)?

Making Tax Digital (MTD) is a government initiative that aims to modernise the UK’s tax system. It requires VAT-registered businesses to keep digital records and submit their VAT returns via compatible software, rather than manually. The rules were rolled out for businesses with taxable turnover over the VAT threshold in April 2019 and were extended to all VAT-registered businesses, regardless of turnover, from April 2022.

For packaging studios, which often manage a variety of design and production-related transactions, MTD compliance is crucial to ensuring your VAT returns are accurate and submitted on time.

Why Packaging Studios Need to Act Now

Packaging studios are unique because they often deal with multiple stages in the production process—design, prototype creation, and final production—each of which may be subject to different VAT rates. To comply with MTD for creative agencies, it’s important to have the right tools and processes in place to track each transaction, the applicable VAT rate, and the time of supply.

Steps for Packaging Studios to Ensure MTD Compliance

To meet MTD compliance for packaging design companies, packaging studios must take the following steps:

1. Confirm VAT Registration Status

If your studio is VAT-registered, MTD applies to you. If you’re unsure about your VAT status or need to register, you can do so through HMRC. Even if your turnover is under the VAT threshold, you may still be required to comply with MTD if you’re VAT-registered.

2. Choose Compatible Accounting Software

MTD requires that you use compatible software to keep your records and submit your VAT returns. Simple spreadsheets are not enough unless they are linked to bridging software that can communicate with HMRC’s digital system. Popular MTD-compliant software includes Xero, QuickBooks, and Sage, among others.

3. Set Up Digital Links Between Systems

Ensure that your software links all of your business processes, from invoicing to expenses. These digital links must be secure and capable of transmitting data to HMRC’s system without manual intervention. You can no longer rely on manual input for data or paper records.

4. Record Every Supply and VAT Rate

For packaging studios, each part of a project (design, tooling, production) may have different VAT rates or timings of supply. You need to record the supply time, VAT rate, and value of each transaction separately. Use your software to automatically capture this data.

5. Submit Your VAT Returns Digitally

Once your records are set up, ensure that VAT returns are submitted via MTD-compliant software. Avoid using the HMRC portal for VAT submissions, as it will not accept submissions unless they’re routed through approved software.

6. Regularly Review Your Processes

MTD is an ongoing commitment. Regularly review your processes and software to ensure you’re staying compliant. This includes checking for any updates to tax rates or software changes, especially if you switch to new platforms.

Challenges for Packaging Studios

While MTD can seem like a daunting task, many packaging studios have successfully navigated it with the right tools. However, challenges still exist, such as:

• Tracking Multiple Phases of Work: Packaging studios often manage complex, multi-stage projects. Each phase—whether it’s design, tooling, or final production—requires accurate VAT tracking.
  
• Overseas Purchases: If you import materials or work with overseas suppliers, these transactions must also be recorded digitally.
  
• Software Integration: Ensuring that your existing systems integrate seamlessly with your chosen MTD-compliant software can require additional setup time.

Case Study

A Manchester-based packaging studio faced challenges with Making Tax Digital (MTD) compliance due to its manual VAT tracking system, which was incompatible with the new requirements. The studio worked with Apex Accountants to implement MTD-compliant software (Xero), set up digital VAT record-keeping, and streamline their VAT return process. With multiple phases in their packaging projects and international suppliers, it was essential to ensure each supply, VAT rate, and transaction was accurately recorded.

By adopting cloud-based accounting and linking all systems digitally, the studio was able to automate VAT calculations and submit returns directly to HMRC. This shift significantly reduced the time spent on VAT submissions by 60% and eliminated the risk of errors. With Apex Accountants’ ongoing support and regular reviews, the studio avoided penalties, improved efficiency, and remains fully compliant with MTD compliance for packaging design companies.

How Apex Accountants Can Help with Making Tax Digital for Packaging Studios

At Apex Accountants, we specialise in supporting creative agencies and manufacturing businesses with MTD compliance. Our experts will guide you through:

• Choosing the right software for your business needs
• Setting up and linking your digital records correctly
• Submitting your VAT returns on time
• Avoiding common pitfalls in MTD compliance

With over 20 years of experience, we help packaging studios ensure they’re not only compliant but also positioned to thrive in the digital age. We offer personalised consultations and ongoing support for all your VAT and MTD-related needs.

Ready to make the shift to MTD?
Book your consultation today with Apex Accountants.

FAQs

Q1. Do all VAT-registered packaging studios need to comply with MTD?

Yes, all VAT-registered businesses must comply with MTD, regardless of their turnover. Since April 2022, MTD applies to all VAT-registered firms.

Q2. Can I still use Excel for VAT records under MTD?

You can use Excel, but only if it is connected to bridging software that communicates with HMRC’s system.

Q3. What software is compatible with MTD for VAT?

Common MTD-compatible software includes Xero, QuickBooks, and Sage. You can find a full list of approved software providers on HMRC’s website.

Q4. What happens if I don’t comply with MTD?

Failing to comply with MTD may result in penalties from HMRC, including fines for late submissions or incorrect records.

Q5. Can I get help from my accountant with MTD compliance?

Yes, accountants can help you select software, set up digital links, and ensure your records are maintained in compliance with MTD requirements.

Q6. How do I track VAT for multi-phase packaging projects?

Each stage of the project (design, production, tooling) must be recorded separately, with VAT rates and time of supply accurately logged.