Making Tax Digital (MTD) is legislation from HMRC that means VAT-registered businesses above the VAT threshold (currently £85,000) must submit their VAT returns via software and keep their VAT records digitally. It came into effect on 1 April 2019.
Essentially, MTD for VAT means businesses must now 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).
Read this article for advice on how to submit a Making Tax Digital for VAT tax return using the new 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.
When is the first Making Tax Digital for VAT return due?
The rule is simple: start following Making Tax Digital from the first day of your first VAT period that starts on or after 1 April 2019.
- If your VAT period has a 31 March end date, your first VAT quarter under MTD for VAT started on 1 April 2019.
- If your VAT period has a 30 April end date, your first VAT quarter under MTD for VAT started on 1 May 2019.
- If your VAT period has a 31 May end date then your first VAT quarter under MTD for VAT started on 1 June 2019.
You can also use our easy-to-use interactive tool to work out when your first MTD for VAT submission should take place.
Don’t forget that if your business is of a type on the deferred list then you don’t have to follow MTD for VAT rules until October 2019. However, starting early may be helpful to give your business time to prepare and fix any issues.
Find out your first MTD submission date
Getting ready for Making Tax Digital but not sure when your first VAT return submission should happen? Find out with our easy-to-use interactive tool.
When to sign up for MTD for VAT and file your first return
The rules around when you can and when you must 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 should sign up to MTD for VAT, and the earliest you can subsequently file your first 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.
Here’s an example for when a business filing quarterly VAT returns can sign up for MTD for VAT.
If the business has to file a VAT return for the April to June 2019 period, and it pays by direct debit, the earliest it can sign up is 15 May 2019—five working days after the previous VAT filing deadline.
The latest the business can sign up is 31 July 2019, seven days before the filing deadline, although it’s wise to do so earlier.
Those businesses that pay by non-direct debit methods can register as early as April but must allow at least 24 hours after filing their previous return before doing so.
The latest they can sign up for MTD for VAT is 72 hours before the filing deadline of 7 August, although it’s wise to sign up earlier than this.
What happens if I miss my submission date?
In the first year of Making Tax Digital mandation, HMRC is taking a “light touch” to penalties. If MTD applies to your business and you miss your submission date, you’ll receive a letter from HMRC to make you aware of this.
If you’ve not yet registered for MTD but should have done so, HMRC will send you an email reminder to let you know you need to join the scheme.
If penalties were in place and you missed your submission date, you could expect to receive the following fine, depending on your company’s gross turnover:
How to register for MTD for VAT
Key to using Making Tax Digital for VAT is that your business must have registered with HMRC for the service in time for your VAT return deadline.
Your business is not enrolled automatically even though MTD for VAT is now mandatory, and even if you’ve previously filed your VAT returns using the VAT portal website.
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, which is to say 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, and 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, and you should not 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 sooner rather than later.
Read more about Making Tax Digital
Creating and submitting an MTD for VAT return
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 then 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 will have 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 then the report should be generated automatically—although don’t forget to enter any adjustments you might need to make.
If your first MTD submission spans or is after Brexit, you may need to make some additional adjustments, especially if you have any purchases or sales to EU countries as these are now reported differently.
You will 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.
Creating and sending an MTD for VAT return using Sage Business Cloud Accounting
Here are the steps required to submit a MTD for VAT return using Sage Business Cloud Accounting. Note that you will 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 have 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:
- While viewing your accounting summary, click the Reporting heading, and then click VAT Returns.
- Click the blue Create VAT Return button.
- 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.
- 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.
- 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.
- Assuming you’re happy with the values shown in the return, click the Submit Online to HMRC option, and then click Save.
- 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.
- 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.
Making Tax Digital
HMRC’s Making Tax Digital has changed how businesses submit VAT returns – we’ll help you with it via a free telephone consultation.
Keeping records digitally
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 for 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 will need to make specific efforts to ensure the data is kept for the required period without any risk or loss or corruption.
Editor’s note: This article was first published in April 2019 and has been updated with new information on missed submission dates and penalties.
The ultimate guide to Making Tax Digital
Is your business ready for Making Tax Digital? Download this free guide to find out what it means for your business and the steps required to submit VAT returns.