The way VAT returns are submitted to HMRC has changed due to Making Tax Digital ( MTD ). Since 1 April 2019, VAT registered business with a turnover above the VAT threshold of £85,000 have to submit their returns digitally. So what does this mean for you and your business?

Making Tax Digital is part of a global trend

It’s not just the UK that’s making the move to digitise tax. Governments around the world are changing processes around how they manage tax in a bid to simplify it and save the billions in revenue that is lost due to errors and, in some cases, fraud.

HMRC has admitted that it loses £9bn a year in tax due to inaccurate submissions. However, it recognises that businesses want to get their tax submissions right. MTD will aim to reduce this shortfall.

If your business is using spreadsheets as part of your tax review process, for example, there’s always a chance that the wrong formulas could be added or an incorrect figure may creep in. And you don’t want to find your business paying too much tax (or not enough) due to errors.

Another reason why MTD is being pushed by HMRC is so it can become one of the most digitally advanced tax administrations in the world.

By modernising the tax system, HMRC is aiming to make it much more efficient and effective, while making it easier for your business to comply.

VAT records need to be kept digitally using functional compatible software

Your business will already be adhering to the requirement of retaining VAT records for a specific period of time. The most common scenario will see you needing to keep records for six years after the end of the VAT year.

If your company is defined as a complex business, you may need to keep those records for a longer period of time.

With Making Tax Digital now in force, you need to keep your VAT records digitally within what HMRC calls “functional compatible software” (also known as MTD-compatible software).’s Making Tax Digital has changed how businesses submit VAT returns – we’ll help you with it via a free telephone consultation.

Legacy software may need to be updated

Adhering to Making Tax Digital may seem simple. However, if your business is using legacy financial accounting software, which can’t prepare and submit digital returns or isn’t able to keep your digital records for the required length of time, for example, MTD could be a more complicated affair.

You might need to update or even replace your legacy software with a new solution that keeps your business on the right side of MTD.

This process is likely to involve preparing, testing and integrating the updated or new system with your company’s set up.

While this may be a frustrating step, it will set your business up for the long term.

Preparing your business for digital tax will mean you’re building processes that are automated and repeatable – this can save your business a lot of time and money. You’ll be able to say goodbye to the hours taken each year that are required to move data from one system and have someone manually key it into another system.

What MTD means for digital transformation

Digital transformation remains a hot topic for medium-sized businesses. Adopting technology in the right way is an important consideration for your business – and this is just as important for the finance department as any other.

But what does Making Tax Digital mean for digital transformation? It should be viewed as a catalyst for driving change in how your business makes decisions on investment.

Rather than relying on spreadsheets for storing data, it’s worth your business moving to a digital solution where data is available for the entire company to utilise.

What’s coming next after the VAT element of MTD

VAT returns are the first step of the Making Tax Digital journey. HMRC intends to include all types of tax in the future. So expect to see Making Tax Digital for income tax, corporation tax, self-assessment and more.

However, the timeline for the roll-out of other taxes is still to be confirmed.

In the 2019 Spring Statement, the UK government confirmed Making Tax Digital will not be mandated for any other taxes or businesses in 2020.

So 2021 will be the earliest that we’ll see the next step of MTD.

Final thoughts on Making Tax Digital

Making Tax Digital should be seen as an opportunity to update and improve your business processes, and save time and money on routine admin tasks.

Take the right steps now, embrace MTD and digital transformation – and the benefits they can give your business – and you’ll put your company in a position to truly thrive over the years to come.

MTD for VAT is now live

Making Tax Digital for VAT (MTD for VAT) is now live. Here, we answer some key questions.

Q: Do all VAT-registered businesses start at once?

A: Each business has its own start date, dependent on its VAT quarters. If your taxable turnover is above £85,000, MTD for VAT rules are compulsory for your first VAT return period starting on or after 1 April 2019

Quarterly filing dates Start of first return period subject to MTD First quarter end within MTDfV First MTD VAT return deadline (month plus 7 days)
March / June / Sept / Dec 1 April 2019 30 June 2019 7 August 2019
Jan / April / July / Oct 1 May 2019 31 July 2019 7 September 2019
Feb / May / Aug / Nov 1 June 2019 31 August 2019 7 October 2019

For monthly returns, the first MTDfV submission will be as follows:

First monthly filing date Start of first return period subject to MTD First month end within MTDfV First MTD VAT return deadline (month plus 7 days)
April 1 April 2019 30 April 2019 7 June 2019

The only exceptions are for businesses in the deferrals category. These adopt MTD for VAT rules for their first VAT return period starting on or after 1 October 2019.

Q: Which businesses are subject to the deferral?

A: These are businesses that are: part of a VAT group or VAT division; based overseas; trusts; not-for-profit organisations not set up as a company; local authorities; public corporations; those making payments on account; annual accounting scheme users; and those using the VAT GIANT service. These businesses should have received written notification of their deferral status from HMRC.

Q: What if my business voluntarily registered for VAT?

A: If your turnover is below the VAT registration limit, you don’t have to enter MTD for VAT, and you can carry on filing as you do at present. But if you prefer, you can join MTD for VAT voluntarily

Q: Does my business have to do anything to get into MTD for VAT?

A: Yes. A business actually has to sign up to MTD for VAT. To do this, you need your Government Gateway user ID and password and VAT registration number. HMRC should confirm, by email, that your sign-up has been successful. Alternatively, we can sign up for you.

Q: Are there other deadlines to watch?

A: When you have signed up for MTD for VAT, HMRC will expect all future VAT returns to be submitted via MTD software. It is therefore very important that you have submitted any outstanding returns and are ready to file all future returns with MTD software when you sign up.

If you usually pay VAT by direct debit, you cannot sign up in the 15 working days before or five working days after sending in a VAT return.

Q: Are there penalties for getting MTD for VAT wrong?

A: MTD for VAT is backed up by a system of penalties. For the first year, however, HMRC intends to take a slightly more lenient approach on penalties for the issue of digital links between software products. Businesses are given until 31 March 2020 to have digital links in place between software products.

HMRC refers to this as a ‘soft landing’ penalty period. During this period, cut-and-paste will continue to be an acceptable way to transfer information to HMRC. For businesses in the deferral group, the soft landing penalty timetable is adapted to give them 12 months to become fully compliant in putting digital links into place.

However, there is an important exception to this. Where VAT return information is transferred out of the accounting records into a separate program for submission to HMRC via the Application Programming Interface (API), transfer must be digital. This would apply, for example, where figures for the VAT return are collated in a spreadsheet and then transferred into bridging software for final submission. The transfer from spreadsheet to bridging software must use a digital link.

These penalties are specific to MTD, and are in addition to HMRC’s other penalty powers.

We can recommend the following software packages to use for submitting your VAT returns:

  • Quickbooks
  • Xero
  • Sage

Require more information?

If you would like more information or would like to speak to us direct then call us on 020 8303 5909. Or if you would prefer, ask us a question online.