Things have changed once when it comes to VAT.
Since April 2022, all businesses that are registered for VAT must follow the Making Tax Digital (MTD) for VAT rules.
This includes those who are voluntarily registered for VAT, and who were left out in the initial April 2019 launch of Making Tax Digital for VAT.
Needless to say, all eligible businesses must ensure they’re legally compliant or risk penalties.
Keeping VAT records digitally, using software to submit VAT Returns…
There’s a lot to do ahead of your first VAT period post-1 April 2022.
Here are some tips to help you get ready.
But first, let’s start with a look at detail around the actual MTD for VAT requirements.
Here’s what we cover:
Does Making Tax Digital for VAT apply to me?
If you’re registered for VAT then, yes, Making Tax Digital for VAT applies to you.
Previously, it was only mandatory for businesses above the VAT threshold (currently £85,000).
But this changed on 1 April 2022.
For all those businesses already using MTD for VAT—including those that are voluntarily registered for VAT—nothing has changed.
However, any VAT registered business that hasn’t used MTD for VAT has to follow its rules for their first full VAT period that begins post-1 April 2022.
This means storing key VAT records digitally.
When it comes time to submit VAT Returns, this must be done using functional compatible software.
Most people use cloud accounting software to take care of both these two requirements.
But you’ll need to register for Making Tax Digital for VAT before submitting your first return, and ensure the MTD feature is activated in your software by signing in with your MTD account details that HMRC provides.
Why Making Tax Digital for VAT will make life easier for your business
It’s easy to see MTD for VAT as yet another time-consuming admin obligation.
But it can be transformative to business accounting because it puts requirements in place for better money management.
By keeping your accounting records digitally, you’re more likely to have all the information you need in one place.
This makes it easier to get a view not just of how much VAT you owe, but also of your cash flow, how much you’re owed, how much you’ve spent, and so on.
Most people use accounting software to be compliant with MTD for VAT.
Provided the data you input is accurate and complete, creating a VAT Return can be done with just a few clicks or taps of the screen.
You haven’t got to worry about keeping records digitally for the required six years because the software does it for you in the background.
And outside of VAT accounting, cloud accounting software can be used for bank reconciliation, invoice management and stock management, among other things.
Using it makes it significantly quicker to reconcile your books each month against your bank account. This frees up significant amounts of time to do more of what you love.
In fact, using accounting software makes VAT accounting so easy that to continue using something like a spreadsheet is to slow yourself down and reduce the chance of spending more time working on what you love to do.
Making Tax Digital for VAT software
Discover how Sage Accounting can help you get your MTD for VAT submission right, calculate your bill and submit your VAT Return with ease.
6 tips to get your business ready for Making Tax Digital for VAT
Here’s six easy tips that should help you prepare for MTD for VAT, so you’re compliant—and can stop worrying about it.
1. Learn what deadlines apply to you
There are essentially three deadlines you need to meet when it comes to MTD for VAT:
- Signing up to MTD for VAT.
- When you must start following the digital record-keeping rules—even if you haven’t yet signed up to MTD for VAT.
- Filing your first MTD for VAT return.
Let’s look at these in chronological order.
The first deadline to consider is when you must start following the digital record-keeping rules.
This will be significantly before you need to sign up for MTD for VAT, and before you submit your first MTD VAT Return.
You must follow the digital record keeping requirements for your first full VAT period after 1 April 2022.
So, for example, if a VAT period ends 31 March 2022 then you’ll need to follow the requirements from 1 April 2022 onwards.
Another example: if your VAT period runs across the 1 April 2022 date and ends on 30 April, you’d need to follow the rules from 1 May onwards.
The second deadline is when you must sign up to MTD for VAT.
There’s a relatively narrow window in which you must sign up, as follows:
- Seven days before your first MTD for VAT return is due, or
- Five days after your first MTD for VAT return is due.
If you file your VAT Returns quarterly, working out the deadline for your first MTD for VAT return is easy, because the existing rules haven’t changed.
You must submit it at most one month and seven days after the end of the VAT quarter.
Therefore, for a VAT period beginning 1 March, you need to file the return by 7 October 2022.
2. Choose your software ahead of time
If you haven’t made your choice ahead of this, you won’t be able to proceed with your registration until you know.
You might find your existing accounting software is already MTD-ready, in which case it’ll be simply a matter of signing in with your MTD for VAT account details after you’ve signed up.
Speak to your software vendor if in any doubt.
3. Speak to your accountant
There’s one person you’re likely to know who’s an expert on all things Making Tax Digital: your accountant.
They’ve already been through MTD for VAT preparations and onboarding, so they’ll know what’s required.
They’re likely to be able to tell you the best way to make MTD for VAT work for you, with particular regard to your unique financial circumstances.
So, why not drop them a line?
Even if you prepare your own VAT Returns, they’re likely to be happy to share information and guidance.
They may have advice on how you can link in your accounting system with theirs, for example, to make life easier for both of you.
4. Educate staff and colleagues
Making Tax Digital for VAT affects all your accounting processes, so it’s important that all the touchpoints when it comes to purchasing and sales know about its requirements.
Remember that MTD for VAT doesn’t change any existing VAT rules.
It just aims to digitalise the accounting side of things. Therefore, it’s about changes to processes, rather than to how VAT is applied (e.g. which rate is applied, and when).
Colleagues in your sales department may need to know about it and change their processes when it comes to issuing invoices, for example.
The details of MTD for VAT can be found in VAT Notice 700/22.
While this is a quite technical document, it’s surprisingly readable and you can use your browser’s search feature to find key terms.
HMRC provides several examples of how things work that can be enormously useful.
Suggesting key senior staff read the document and perhaps prepare a short report on how MTD for VAT is likely to apply to their work and processes is worth considering.
5. Consider other Making Tax Digital schemes
MTD for VAT is the first of what may prove to be many Making Tax Digital schemes.
In 2025, it will apply to general partnerships, with the same £10,000+ earning criteria.
It’s unclear if MTD for Income Tax will subsequently be applied to individuals or businesses outside of this.
But considering that MTD for VAT was limited to those over the VAT threshold back in 2019, and is now being rolled out to all VAT businesses, we might expect many more people in future to have to follow the MTD for Income Tax requirements.
Then, no sooner than April 2026, Making Tax Digital for Corporation Tax is due to arrive.
So, when you adjust your accounting processes to become compliant with MTD for VAT, include MTD for Income Tax or Corporation Tax in your thinking.
If you use spreadsheets for your accounting and are upgrading to accounting software, for example, speak to the vendor about the 2024 MTD for Income Tax start date.
And ask if the software is truly MTD ready.
6. Check if your business is digitally excluded
It’s not entirely accurate to say every business that’s VAT registered must follow the MTD for VAT rules.
Some people are considered by HMRC to be digitally excluded. This means they don’t have to follow MTD for VAT.
Such people are identified by their inability to either use computers or go online.
This might be because of a physical disability, but it can also be due to issues such as religious prohibitions. It might simply be because the individual lives in a remote location where there’s no internet connection.
Unfortunately, you need to convince HMRC that you (and your business) should be considered digitally excluded.
This involves calling their helpline and speaking to their customer support team to make your case.
It’s only after you’ve specifically been granted digital exclusion that you can revert to your existing methods of preparing VAT Returns and storing VAT records.
One thing is certain, though—you can’t simply opt-out of MTD for VAT.
Final thoughts on Making Tax Digital for VAT
MTD for VAT may present challenges to businesses, but it can be transformational when it comes to understanding not just what tax you owe but also your business finances.
Smart businesses should use Making Tax Digital for VAT as a prompt to modernise their processes to create a business ready for the future.
Editor’s note: This article was first published in February 2022 and has been updated for relevance.
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Making Tax Digital for VAT checklist
Download your free (and easily printable) Making Tax Digital checklist and follow the steps to help you with your VAT Return processes.
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