All you need to know about Making Tax Digital for VAT

Making Tax Digital for VAT is the first step in HMRC’s plan to digitise the UK’s taxation system. Originally Making Tax Digital (MTD) for VAT was only a requirement for VAT registered businesses with turnover in excess of the VAT registration threshold of £85,000. However, from April 2022, all VAT-registered businesses will be required to keep digital VAT records and submit VAT returns via MTD-compliant software, regardless of their turnover.

This means that voluntarily VAT-registered businesses generating revenues below the £85,000 threshold will have to comply from 1st April 2022. Making Tax Digital for VAT will apply to their first VAT return starting on or after April 2022.

If you’re feeling a bit in the dark about Making Tax Digital for VAT, don’t panic. Read on as we explain how MTD for VAT affects your business and how to get started.

What will change when registering for Making Tax Digital for VAT?

Once your business has signed up to MTD for VAT, you will be required keep digital VAT records and use Making Tax Digital-compatible software to complete the following tasks:

• Updating your VAT records
• Generating new VAT returns
• Submitting new VAT returns to HMRC online

As an Making Tax Digital for VAT-registered business, you will no longer be able to file VAT returns via the HMRC website. You will have to use MTD-compatible software for the foreseeable future.

Is Making Tax Digital for VAT a legal requirement?

Businesses with revenues that exceed the £85,000 VAT threshold have been required to comply with Making Tax Digital for VAT since 1st April 2019.

As of 1st April 2022, all VAT-registered businesses must legally comply with Making Tax Digital for VAT, regardless of turnover size.

There are some limited exemptions to Making Tax Digital for VAT, and these are explained later in this article.

Does Making Tax Digital cover VAT only?

Making Tax Digital is an overarching plan to digitise the UK’s entire tax system. Making Tax Digital for Income Tax (MTD for ITSA) is due to launch in April 2026 for sole traders and landlords with business or property income above £50,000 and April 2027 for sole traders and landlords with business or property income above £30,000.

There are no start dates as yet for MTD for ITSA for sole traders and landlords with business or property income below £30,000, MTD for general partnerships or MTD for Corporation Tax.

MTD for VAT was the first step towarded making the UK tax system ‘go digital’, with VAT-registered businesses blazing a trail for the future of digitised tax reporting.

What VAT-related records must I store digitally?

As an MTD for VAT-registered business, you are required to store the following records within your MTD-compatible online accounting software:

• The name of your business
• Your VAT registration number
• The primary address of your business
• Information on any VAT accounting schemes used
• The date, net value and VAT rate of every customer invoice
• The date, net value and amount of VAT claimed on each supplier invoice

Note: If you use a VAT scheme, you may be required to store more or less data, depending on its requirements. Furthermore, any handwritten invoices or receipts must also be digitised using your MTD-compatible accounting software.

Are any businesses exempt from Making Tax Digital for VAT?

Reasons for being exempt from Making Tax Digital for VAT include the remote location of your business, your age or disability, as well as any religious grounds that prevent you from having a computer.

A digital exemption can be requested by yourself or your trusted accountant via a telephone call or formal letter.

Any business involved in an insolvency process is also exempt from Making Tax Digital for VAT.

How must firms exempt from Making Tax Digital for VAT submit their future VAT returns?

Any business given a legitimate digital exemption may be able to file a paper-based VAT return, but only at HMRC’s discretion. Your accountant can request permission on your behalf, or you can liaise with HMRC yourself.

Any other VAT-registered business must file VAT returns via MTD-compliant software from 1st April 2022.

How long has Making Tax Digital for VAT existed?

VAT-registered businesses – including sole traders, limited companies and limited liability partnerships – earning above the £85,000 VAT threshold have been required to file through MTD for VAT since 1st April 2019.

Additional organisations such as trusts, public corporations and local authorities saw their start date deferred to October 2019.

How best can I prepare my business for Making Tax Digital for VAT?

Any business that’s required to sign up to MTD for VAT from 1st April 2022 should ensure they have MTD-compliant software for VAT accounting and filing VAT returns.

If you aren’t already using accounting software that incorporates an MTD for VAT feature within it, you should make plans to upgrade your infrastructure as soon possible, so you are ready for the changes.

Is Making Tax Digital for VAT applicable if my business uses a VAT scheme?

From 1st April 2022, any VAT-registered business must comply with the requirements of Making Tax Digital for VAT. This is regardless of whether you use a VAT scheme, such as retail, flat rate or margin schemes.

When must I register my business for Making Tax Digital for VAT?

Those not yet signed up for Making Tax Digital for VAT must do so before the due date of their first full VAT reporting period commencing on or after 1st April 2022.

For those paying their VAT liabilities via direct debit, it is recommended that you sign up no later than seven days before your first Making tax Digital for VAT return is due or five days after your first MTD for VAT return is due.

Those paying by other means should sign up no later than three days before your first MTD for VAT return is due.

How do I register for Making Tax Digital for VAT

You can sign up your business for Making Tax Digital for VAT online via the GOV.UK portal, using your Government Gateway login details.

If you don’t already have a Government Gateway login you will need to create a new account. However, if you’ve already filed conventional VAT returns before, the chances are you already have a Government Gateway login.

Your accountant can also sign up your business on your behalf.

What information must I provide in my Making Tax Digital for VAT application?

To formally register for Making Tax Digital for VAT, you must supply the following details to support your application:

• Your valid Government Gateway ID and password
• Your business’ VAT registration number
• The date of becoming a VAT-registered business
• The postcode of your primary business base
• The ‘Box 5’ figure listed in your latest VAT return
• The month your latest VAT return was submitted
• Your chosen MTD-compatible accounting software

Is it easy to file a Making Tax Digital for VAT return?

When your first MTD for VAT return is due, you will need to submit it using your accounting software. Alternatively, you can use bridging software if you calculate your VAT without using an accounting program, such as an Excel spreadsheet.

You should make sure your accounting software is fully compliant with Making Tax Digital for VAT. The software provider should provide guidance on how to configure their software to prepare and submit returns under MTD for VAT rules.

Always ensure any VAT reliefs or adjustments are made to your VAT report before submitting it to HMRC.

Do I have to submit my own Making Tax Digital for VAT return?

If you are familiar with your accounting software, you may file your MTD for VAT returns yourself. Alternatively, a qualified accountant can handle this on your behalf.

Most reputable accountancy firms will have their own HMRC Agent Services Account to submit returns on their clients’ behalf. If you want your accountant to do the legwork, be sure to discuss this with them well in advance of your first Making Tax Digital for VAT return.

Need help with Making Tax Digital?

At TaxAssist Accountants we can provide guidance and support getting your ready for Making Tax Digital as well as help you choose the right Making Tax Digital-compliant reporting software, with platforms such as QuickBooks and Xero helping to manage your tax easier and faster, wherever you are.

If you would like a free initial consultation on your future Making Tax Digital obligations as a self-employed professional, please don’t hesitate to contact our friendly and experienced team today on 01952 459818. Alternatively, you can start the conversation with us via our online enquiry form.

Date published 27 Jan 2022 | Last updated 20 Mar 2024

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.