Making Tax Digital (MTD)

The way businesses file Value Added Tax (VAT) returns is changing

HMRC is reminding businesses to sign up for Making Tax Digital (MTD), which allows them to keep digital records and ...


HMRC is reminding businesses to sign up for Making Tax Digital (MTD), which allows them to keep digital records and file all VAT returns with MTD-compatible software. This means that the way businesses file Value Added Tax (VAT) returns is changing and you need to be ready.

 

What is changing?

All VAT-registered companies must sign up for MTD. They will need to use compatible software to keep their VAT records and file returns. This is to ensure businesses are able to file their taxes correctly the first time, increase productivity and go paperless. The service is already used by over 1.79 million companies. MTD has processed more than 19 million returns and businesses report that MTD has helped them to be more confident in their tax affairs and their use of technology.

From 1st November, businesses that file VAT returns quarterly or monthly will no longer have the option to submit them online unless HMRC agrees they are exempted from MTD. HMRC has sent a reminder to businesses about the changes.

Businesses who fail to file their VAT returns via MTD may be subject to a penalty. Even if the business has digital records, they must verify that their software is compatible with MTD before they file their next return.

 

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Businesses or agents acting on behalf of businesses that are VAT-registered must comply with MTD for VAT.

 

Steps to sign up to MTD

 

The essential information you need about signing up for an account:

  • To avoid double VAT payments, businesses must register at least five days after the last non-MTD VAT returns deadline date and not less than seven days before the first MTD VAT returns deadline date.
  • Bridging software is a type of MTD-compatible software that extracts data from legacy software or spreadsheets and submits it to HMRC. Digital links are required to ensure digital records are maintained as information is moved between platforms. Visit this page for more information.
  • Digital records must be kept by businesses starting with their VAT accounting period which begins on or after April 20, 2022.
  • Non-VAT registered companies can register through the VAT Registration Service (VRS), and will be automatically signed up for MTD.

 

What happens if your business is new?

If your business is new and you have not yet registered for VAT you will be automatically signed up for MTD. You can also register for VAT via HMRC's new VAT Registration Service (VRS). This online registration allows for faster VAT registration and better security. It also gives new businesses a better customer experience.

 

What happens if you are exempt?

You don't have to file VAT returns online if you are already exempt or if your business is subject to an insolvency proceeding. You may have other reasons that it is not feasible for you to comply with MTD requirements. In these cases, you can apply for an exemption. Each application is considered by HMRC on a case-by-case basis. More information about exemptions from MTD can be found here.

 

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