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Making Tax Digital For VAT - What Are The Important Bits?

As of April 2019, the government set out a new initiative for tax in the UK. This initiative aims to make it easier for individuals to keep on top of their tax obligations and make it easier to get them right.

You will need to use compatible software that works in line with HMRC’s systems to facilitate this.

So what are the important bits that you will need to know?

1. What is Making Tax Digital for VAT?

Three blocks spelling out VAT sit on a calculator alongside a clock

The software that you use will need to be able to do the following tasks:

  • Keep and maintain your VAT records
  • Create VAT returns
  • Send the VAT returns to HMRC

These changes mean you will no longer be able to submit VAT returns through the HMRC website.

You will need to keep all VAT accounting records for at least six years (it may be longer for some VAT schemes).

2. When is the deadline for Making Tax Digital for VAT?

If your business has a taxable turnover above the VAT threshold (currently £85,000), you are already required to follow the Making Tax Digital rules.

After April 2022, all remaining VAT registered businesses must follow the Making Tax Digital rules. You don’t need to wait until the deadline, you can voluntarily register and start using compliant software before then if you prefer.

If you are signing up early, you have peace of mind knowing that you’re already compliant when the time comes.

3. What information needs to be kept digitally?

Magnify glass over files

As part of the digitisation of information, certain pieces of information will need to be kept in a digital format. These include:

  • Your business name
  • Your principal business address
  • Your VAT registration number
  • Details of the VAT accounting schemes that you use
  • Most businesses will need to produce a record of each invoice, the time and date, and the VAT rate.

Depending on the VAT scheme your business uses and your circumstances, you may be required to keep more or less information than this.

Even if your invoices are handwritten, you will still need to record the invoice digitally in your accounting software before submitting your returns.

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4. What information will be submitted as part of the return?

While your business needs to keep a record of everything mentioned above, HMRC will only receive a summary of the data in each VAT return. This is still in line with the nine boxes on the VAT return.

  1. VAT due on sales and other outputs
  2. VAT due on acquisitions from other EC member states
  3. Total VAT due
  4. VAT reclaimed on purchases and other inputs
  5. Net VAT to be paid to Customs or reclaimed by you
  6. Total value of sales and all other outputs excluding any VAT
  7. Total value of purchases and all other inputs excluding any VAT
  8. Total value of all supplies of goods and related costs, excluding any VAT, to other EC member states
  9. Total value of acquisitions of goods and related costs, excluding any VAT, from other EC member states

5. Can I be exempt from Making Tax Digital for VAT?

Doing accounts with a receipt, book and calculator

There are a few reasons you might be exempt from using Making Tax Digital for VAT. These are usually based on; not being able to use computers, the accounting software, or the internet. You will need to ask HMRC to digitally exempt your business if this is the case.

Reasons can include:

  • Age, disability, being in a remote location
  • Religious grounds that stop you from using computers
  • Any other reasons why using Making Tax Digital for VAT isn’t practical

To apply for an exemption, either you or your accountant will need to call or write to HMRC.

6. When should I register for Making Tax Digital for VAT?

If you’re already VAT registered, you can register for Making Tax Digital for VAT at any time (even if you’re not legally required to yet).

If you’re signing up for VAT for the first time, you will be automatically enrolled.

To avoid any complications with previous return payments if using direct debit, you must not sign up less than:

  • Seven days before your first Making Tax Digital return is due
  • Five days after your first Making Tax Digital return is due

If you’re not paying by direct debit, you must sign up at least three days before your VAT return.

7. How do I register for Making Tax Digital for VAT?

You will need to sign in to your Government Gateway account for your business and fill out the application form. If you do not have an account, you will have to create one.

You can register for MTD for VAT through the HMRC website.

Once you have registered with HMRC, you will probably need to activate the Making Tax Digital functionality within the accounting software you are using.

8. Is Making Tax Digital only used for VAT?

Currently, Making Tax Digital is only being used for VAT. However, as of April 2024, it will also be introduced for Income Tax.

At the moment, this is still very much with HMRC, so we cannot give you some of the answers you’re probably asking about how this will work exactly.

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This post should be used as guidance only. Please consult your own accountant or bookkeeper for advice tailored to your business.

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