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Making Tax Digital for VAT

Making Tax Digital (MTD) for VAT will shortly be rolled out by HMRC. Businesses whose taxable turnover exceeds the VAT registration threshold will need to keep their records digitally, using MTD compliant software, which produces the VAT return directly from that software, for return periods starting on or after 1 April 2019. Let’s look at the main issues to affect businesses in preparing for MTD.


Under the MTD rules you will no longer be able to keep manual records. Businesses must use ‘functional compatible software’ (digital records) to meet the new requirements. Digital records means a software programme or programmes which can connect to HMRC’s systems via an Application Programming Interface (API). The software must be able to:

l Keep the required records in a digital form;

l Preserve those records in digital form for up to 6 years;

l Create a VAT return from the digital records;

l Provide HMRC with this information digitally;

l Provide HMRC with additional data on a voluntary basis; and,

l Receive information from HMRC about the business’s compliance record.

Therefore the biggest impact on business is going to be the disruption of changing their bookkeeping system, however, the magnitude of this depends on the current systems in place. It may be as easy as upgrading software to the latest version or the introduction of a new system may be the only option. Either way, this is a good opportunity to take advantage of the latest software available which if used correctly will help make your bookkeeping more efficient and effective.

VAT return submission

You will no longer be able to log into the HMRC Government Gateway and key in your VAT Return manually. VAT returns must be submitted to HMRC via MTD compatible software or spreadsheets communicating digitally via HMRC’s API platform.

You are not permitted to manually re-enter totals from your old software to another MTD compliant software or spreadsheet, but those figures should be transferred digitally. There will be a “soft landing” in the first year of MTD, allowing more time for these digital links to be put in place. Transferring data manually can still be used during the soft landing period for transferring data between software packages but not but not for VAT periods commencing on or after 1 April 2020.

Adjustments are often required prior to submission of the VAT return, such as for fuel scale charges or partial exemption adjustments. Depending on the chosen software or spreadsheet used there will be various ways to adjust for these kinds of entries. If in any doubt you should discuss this with your advisor who will be able to assist.

Flat Rate Scheme (FRS)

Businesses eligible to use the FRS currently account for output tax as a specified percentage of turnover and don’t claim input tax on most purchases. Digital recordkeeping requirements will mirror current recordkeeping requirements, ie FRS users must keep digital records of sales, but only need to record purchases of capital goods costing £2,000 or more including VAT.

Businesses that are below the VAT threshold but voluntarily registered

These businesses will not be required to comply with the MTD recordkeeping and reporting obligations. The existing method of online filing of VAT returns with HMRC will be retained for these businesses. However, these businesses can choose to enter MTD for VAT on a voluntary basis if they so wish.

It is unknown if these businesses will have to comply with MTD for VAT, although if businesses are mandated into income tax in April 2020 (or later) it is possible that the VAT requirement will be extended to voluntary VAT registrations at that stage. In the meantime, HMRC will have to run two systems, and at some point, they will wish to turn off the old VAT portal.


MTD for VAT is still expected to commence from 1 April 2019 for the majority of affected businesses, which is the same time as the UK leaves the EU. Notwithstanding the proposed EU Exit transitional period to 31 December 2020, uncertainty around the VAT treatment of transactions between the UK and EU will inevitably arise, and businesses will need to both understand the tax-technical changes to the rules, and ensure that their accounting systems deal with such transactions correctly. In any event, April 2019 remains a challenging time frame, particularly as the software trials have only recently been opened to qualifying taxpayers, and the pilot entry criteria will be broadened in early 2019 to other businesses, meaning that the latter businesses may only have one VAT return period for testing before MTD for VAT goes live.

So, are you ready for Making Tax Digital? Which category do you currently fall into and what are your next steps…

I keep manual records

Handwritten or records maintained on spreadsheets will no longer be permitted. You will need to start using accounting software or API enabled spreadsheets to ensure your business is ready for MTD before the April 2019 deadline.

This is a good opportunity to select the right software for your business which if done correctly will bring positives such as time savings and accurate real-time information rather than extra administrative burdens.

I use old software

Records are kept on bookkeeping software, but not the latest version. If your software is more than one year old and no monthly/annual subscriptions is in place, it is not MTD ready and will need upgrading. You will no longer be able to submit your VAT return from April 2019.

The simple option would be to upgrade to your software providers latest version, but you should check it will be MTD ready. Or this may be a good opportunity to change your provider to software that is more suited to your business needs or consider the switch to cloud accounting.

I am already using MTD ready software

Records are kept on the latest version of your desktop software or you subscribe to a cloud accounting provider.

You are all ready for MTD! From April 2019, your provider will enable the submission of a VAT return via the software ensuring you and your business are MTD compliant.

In summary, if you are VAT registered and over the registration threshold, you need to ensure you are ready for MTD when it comes into force from 1 April 2019. Whatever your situation we would advise you contact your professional advisor to ensure you are ready for MTD for VAT.