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How to submit a Making Tax Digital for VAT return

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Making Tax Digital (MTD) is legislation from HMRC that currently affects how VAT-registered businesses do their VAT accounting.

When it was introduced in April 2019, only businesses above the VAT threshold (currently £85,000) had to comply.

But as of April 2022, all VAT-registered businesses will adhere to it.

This affects a significant number of businesses that have voluntarily registered for VAT and haven’t been required to sign up to MTD yet.

MTD for VAT means businesses that fall within its scope must submit VAT returns via software. They must keep their VAT records digitally.

Essentially, MTD for VAT means businesses must use accounting software that can connect to HMRC’s systems for the purposes of filing a VAT return (or use some kind of computerised accounting process that can do so).

According to TechRadar: “The best route to take for making the whole tax filing process even easier is to select a comprehensive accounting solution” – and it’s chosen Sage Accounting as the ideal choice to fit that criteria.

This will be a big change for some.

But it’s one that makes accounting easier for businesses.

If VAT accounting is digitalised in the way MTD demands, it enables better insights – and therefore can improve business decision-making.

Read this article for advice on how to submit a Making Tax Digital for VAT tax return using MTD if you’re new to the system.

These steps assume you or your employees file the VAT return for your business, and that your accountant, bookkeeper or other agent doesn’t do so on your behalf.

Here’s what we cover in this article:

What is the April 2022 mandation of MTD for VAT all about?

When is the first Making Tax Digital for VAT return due?

When to sign up for MTD for VAT and file your first return

What happens if I miss my submission date?

How to register for MTD for VAT

Creating and submitting an MTD for VAT return

Creating and sending an MTD for VAT return using Sage Accounting

Keeping records digitally

Final thoughts: Get started now

HMRC has announced that MTD for VAT will now apply to all VAT registered businesses (apart from those that are digitally excluded).

This is mandated from the first full VAT accounting period following April 2022 (see below for example dates).

There are nearly a million businesses that are voluntarily registered for VAT but that weren’t included in the scope when MTD for VAT was first introduced.

Some of these have since signed up for MTD for VAT – but there are still many that haven’t.

Note that using MTD for VAT-compatible accounting software doesn’t automatically mean you’re compliant.

You’ll need to register for MTD for VAT and configure the option within your accounting software.

 

For businesses that are new to Making Tax Digital because of the April 2022 deadline, such as voluntary VAT filters, the rule is simple: by law you must start following Making Tax Digital from the first day of your first VAT period that starts on or after 1 April 2022.

You can sign up earlier, of course.

But the latest dates are as follows:

  • If your VAT period has a 31 March 2022 end date, your first VAT quarter under MTD for VAT starts 1 April 2022.
  • If your VAT period has a 30 April 2022 end date, your first VAT quarter under MTD for VAT starts 1 May 2022.
  • If your VAT period has a 31 May 2022 end date, your first VAT quarter under MTD for VAT starts 1 June 2022.

The rules around when you can and when you can’t sign up to Making Tax Digital for VAT are a little complex and require careful preparation.

You can’t sign up for MTD for VAT until after you’ve filed your last non-MTD VAT return.

Additionally, you shouldn’t forget the rule that a VAT return and payment must usually be filed within a whole calendar month plus seven days after the VAT accounting period ends.

However, you should always check the filing deadline for your business in your online VAT account at HMRC’s website.

HMRC offers the following guidelines as to when you can sign up to MTD for VAT, and the earliest you can subsequently file your first MTD VAT return:

  • If you pay by direct debit, you must allow five working days after the filing deadline for your final non-MTD return before signing up for MTD for VAT, and must allow at least seven working days before the filing deadline to file your first return under MTD.
  • If you pay by non-direct debit methods, you must allow 24 hours after your last non-MTD return before signing up, and 72 hours after signing up before filing your first return under MTD.
  • If you’ve filed your VAT return late, and you pay by direct debit, you must allow five working days after filing late before signing up. If you pay by non-direct debit methods then, as above, you must allow 24 hours before signing up if you’ve filed your VAT return late.

Businesses mandated for MTD for VAT as of April 2022 can sign up right now because the system is already up and running, and has been for several years.

But the limitations mentioned above mean you shouldn’t leave signing up too late.

If your business has to file a VAT return for the April to June 2022 period, and it pays by direct debit, the latest the business can theoretically sign up is 31 July 2022 – seven days before the filing deadline.

However, it’s wise to do so earlier. That way you can iron out any problems (if they arise) well ahead of time.

Assuming the same VAT period as above, those businesses that pay by non-direct debit methods can register as late as 72 hours before the filing deadline of 7 August 2022 – although again, it’s strongly advised to sign up earlier than this.

In the first year of Making Tax Digital mandation, HMRC took a “light touch” to penalties.

For this April 2022 wave of MTD, however, it’s not doing this. You need to get things right from day one, or you could face penalties.

Also beginning in April 2022 is a points-based late submission and late payment sanctions system.

Administered by HMRC, this will replace the existing penalties system for VAT payers as of accounting periods beginning on or after 1 April 2022.

In summary, the following will apply:

  • Every time a submission deadline is missed, one point is applied against you.
  • Once your number of points exceed a threshold, a penalty of £200 is applied. This threshold depends on how frequently you make a VAT submission. Quarterly submissions have a threshold of four points before the penalty is applied. Monthly submissions have a threshold of five points. Annual submissions have a threshold of two points.

More details can be found in the Penalties for Late Submission policy paper.

There’ll also be penalty charges if you pay more than 16 days late (or if you fail to agree a Time to Pay arrangement with HMRC).

This will be at half the full percentage rate (2%) for 16 to 30 days after the due date, and then the full interest rate (4%) from day 30 onwards.

A second charge will also become due from day 31 onwards until such time as payment is made or a Time to Pay agreement is reached.

More details can be found in the Interest Harmonisation And Penalties For Late Payment and Late Submission policy paper.

Key to using Making Tax Digital for VAT is that your business must have registered with HMRC for the service in time for your MTD VAT return deadline, at the very latest.

But it’s wise to sign up as soon as possible.

If you’re signing up for VAT for the first time, MTD enrolment will be part of it.

But if you’re already registered for VAT and are mandated for MTD as of April 2022, your business won’t be enrolled automatically.

This is true even if you’ve previously filed your VAT returns using the VAT portal website, or using your accounting software.

The registration process involves logging in with the Government Gateway account for your business. You might have used this previously when filing VAT returns via the portal website.

If you don’t have an account, you’ll be invited to create one, and will need an email address to do so.

Once the process is complete, which will take a few minutes, you’ll be emailed a Government Gateway ID. This will consist of a series of numbers.

To register for MTD for VAT with HMRC, you’ll need to input the following information when requested upon visiting the MTD for VAT registration website:

  • Your Government Gateway ID and password
  • Your company’s VAT number (which you’ll find on your VAT registration certificate)
  • The date your business became VAT registered (again, found on your VAT registration certificate)
  • The postcode of the principle place of business (the place where your company carries out most of its business activities and/or keeps its financial and business records)
  • The Box 5 amount from your most recent VAT return, which is to say the amount of your last VAT return
  • The month in which your most recent VAT return was submitted.

Once you’ve inputted these details, HMRC will immediately verify them. If you’ve made any errors, you’ll be invited to input the details again.

Note that verification from HMRC that your business can start submitting VAT returns via MTD for VAT might take up to 72 hours – you shouldn’t submit your VAT return until you receive this confirmation.

This delay might run the risk of your submitting a late VAT return, so you should register now rather than later.

Once you’ve registered, when your VAT return date comes around, you’ll need to file it via the accounting software your business uses, or potentially via bridging software if you calculate your VAT without the benefit of accounting software.

Your accounting software will also need to be Making Tax Digital for VAT-ready – and this will almost certainly be the case if you use cloud accounting software.

If your business relies on desktop software, you may need to update it using a submission or bridging tool.

You might have to download a submission or bridging module, or even request an update CD/DVD from the software developer.

Not all desktop accounting software has been updated for MTD for VAT, in which case you might have to migrate your accounting to an up-to-date MTD for VAT-compatible system.

How VAT returns are filed in various accounting software packages varies but generally, you should look for an option to create a VAT report or return, or something similar.

If you’ve used the accounting software to record your VAT accounting over the previous period, the report should be generated automatically – although don’t forget to enter any adjustments you might need to make.

You’ll probably then need to tell the software to start submitting using the MTD process.

This is likely to be an “Enable MTD” or similar option that is located somewhere in the settings, options or feature menu area.

Following this, select the option to submit the VAT return online to HMRC.

At this point, you might need to enter your Government Gateway ID so your accounting software can log into HMRC’s MTD for VAT systems.

Alternatively, before commencing the above steps, you may need to first associate your accounting software with HMRC’s systems using an option found elsewhere, such as within your user account profile.

Here are the steps required to submit a MTD for VAT return using Sage Accounting.

Note that you’ll be unable to do this if you have an outstanding VAT return not yet submitted within Accounting, or if you have a failed VAT return in your accounting system.

Needless to say, you should’ve also followed the instructions above to register with HMRC for the MTD for VAT service.

First, you need to switch on the MTD functionality within Accounting. This only needs to be done once every 18 months, and requires your Government Gateway user ID and password.

To activate MTD within Accounting, click Settings and then, in the Financial Settings section, click Accounting Dates & VAT.

Scroll down until the Making Tax Digital section is visible, and click Authenticate. Then follow the instructions, which will include granting access for Accounting with HMRC.

Now you must generate and file the VAT return.

These steps should be used each time:

  1. While viewing your accounting summary, click the Reporting heading, and then click VAT returns.
  2. Click the blue Create VAT return button.
  3. The dates will be set automatically based on HMRC’s reporting requirements for your business. All you need to do is click the Calculate button.
  4. Once the calculations are complete and the figures are displayed, you might need to make adjustments. To do so, click the Adjust link alongside whichever amount needs to be adjusted.
  5. It’s also possible to click the Detailed Report button to see more info about the return, and you can create a hard copy of the return by clicking the Print button. However, neither of these are necessary to file the return.
  6. Assuming you’re happy with the values shown in the return, click the Submit Online to HMRC option, and then click Save.
  7. A dialogue box will appear asking you if you’re sure you’re happy with the return. Click the Finalise and Submit button to complete the submission.
  8. You’ll be shown the VAT return List, which shows the return and a brief status message about how it’s progressing. You can view this list in future by repeating Step 2 above.

Most discussion about implementing Making Tax Digital has focused on the digital filing of VAT returns, but the MTD for VAT legislation also says accurate, complete and readable VAT records must be kept digitally.

As per the existing VAT regulations, records must be kept for at least six years after the end of the current tax year, or 10 years if you previously used the Mini One-Stop Shop (MOSS) businesses.

Accounting software should take care of this for you automatically.

But if you rely on another accounting method, you’ll need to make specific efforts to ensure the data is kept for the required period without any risk or loss or corruption.

Those who have to sign-up to MTD for VAT as of April 2022 have both a potentially easier and more difficult time compared to those that signed up back in April 2019.

It’s easier because we now have two years’ worth of experiences to guide the process. Any problems that HMRC might have experienced in those early days have long since been ironed out.

However, this comes at the expense of the April 2022 mandated businesses not being given the soft-landing period that eased the rules on digital linking (see our earlier blog for details).

And HMRC isn’t offering the same initial easing around penalties for businesses should they make a mistake.

In short, those mandated for MTD for VAT in April 2022 need to hit the ground running.

The best way to do that is to switch to MTD for VAT right now. Or, at the very least, you need to start discussions in your business as to the best way to transition.

This way you get access to support outside of the crunch time from April 2022 onwards, when HMRC, accountants and software vendors are likely to be seeing a lot of requests for help.

Editor’s note: This article was first published in April 2019 and has been updated with new information several times, including for the forthcoming additional wave of MTD for VAT sign ups in April 2022.

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Comments (8)

  • Hi my accountant usually submits my vat return, and I have tried to use the software they use for MTD, however I don’t like the software and would much prefer SAGE. Does my accountant need to have SAGE software too to be able to check over my records before submitting to IR?

  • Hello, we are a German Company with VAT Registration in GB with a start date for MTD of October 19. As accounting software we use Sage 100 Version 1607 from Sage/DE. Could we use Sage MTD Submissions Module as separate bridging Software to submit VAT Returns under MTD?

  • Can you send the link for step by step instruction on submitted quarter VAT Returns for Software Sage 50cloud accounts professional.

  • We have a group registration for two companies that (separately and in combination) would have partial VAT recovery, and we also have an annual adjustment. I have been waiting for advice around how to deal with this from both HMRC and Sage but we’ve now submitted our last pre-MTD return but without response so far

  • We are cash accounting, annual accounting for VAT with a start date for MTD of October 19. We have Sage 50 cloud accounts version 25. I have previously only done one vat return at the end of September being the VAT year end. Will this change? Ann

  • Can you change the VAT scheme once MTD has been enabled and connected to HMRC? We are on Flat Rate, but it says Flat Rate Cash Basis- presumably comes as default from HMRC>?
    Can we not have it on Flat Rate but accruals basis? Please advise on how do we make this change?
    Thank you

  • I have Sage 50 Cloud Essentials and it looks nothing like the above. I have already actioned MTD and was looking to see how to do the return. My screen is the same as before, no ‘reporting’, ‘VAT return’ as on here. I have tried updating but am up to date with v25.1.128. Do I just do the VAT return as before and it will be an MTD submission??

  • trying to submit first MTD vat return. Getting error after entering gateway details of – An error has occurred….client or agent is not authorised.
    Any ideas how to resolve this?