Did you know the way you file your VAT Returns for your VAT-registered business has changed?
And with VAT Return filing deadlines on the horizon, you need to make sure you’re complying with all requirements.
After all, you don’t want to end up with a potential fine for not following the rules, right?
Is this all news to you?
Don’t despair, we’re here to help you with Making Tax Digital for VAT.
In this article, we look at how to register for MTD for VAT if you’re new to it all.
Here’s what we cover:
- Overview of Making Tax Digital for VAT
- Can I simply carry on submitting my VAT Returns as normal?
- How to register for a VAT account and submit a VAT Return online
- What you need to register for MTD for VAT
- How to register for MTD for VAT
- Can my accountant register for MTD for VAT for me?
- How to ask to be digitally exempt from MTD for VAT
- Can I deregister from VAT to avoid MTD for VAT?
- Final thoughts on MTD for VAT
Overview of Making Tax Digital for VAT
If your business is registered for VAT, you’ve probably heard all about Making Tax Digital (MTD), and MTD for VAT in particular.
Introduced in April 2019, it affected all VAT-registered businesses over the VAT threshold (currently £85,000).
But now, MTD for VAT applies to all VAT-registered businesses. This includes businesses that are voluntarily registered for VAT and under the threshold.
They must store their VAT accounting records digitally and use compatible software for their VAT accounting.
MTD for VAT provides an opportunity to revolutionise your accounting.
By switching to software, or updating your current software to be compliant, you can both modernise and take advantage of the latest technologies.
At the same time, your overall accounting admin workload is reduced.
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Can I simply carry on submitting my VAT Returns as normal?
Unfortunately not, no.
From 1 November 2022, you won’t be able to use your existing VAT online account to file quarterly or monthly VAT Returns.
(If you file annual VAT Returns, HMRC says you can use your VAT online account until 15 May 2023.)
The only way you’ll be able to submit your VAT Returns is by signing up to MTD for VAT and using MTD compatible software – and you need to start doing that now or you could be penalised by HMRC.
However, if your business turnover is under the £85,000 VAT threshold and you’ve not signed up for MTD for VAT in enough time to submit your next tax return by 7 November 2022, you’ll still be able to use your existing VAT online account.
Take note – it will only be for that return.
Following that, for quarterly or monthly VAT returns, you’ll need to use MTD-compatible software to file any that are due after 1 December 2022.
If you don’t, you could face a penalty.
HMRC is sending letters and emails to businesses now that need to start following the MTD for VAT rules, so if you’ve not signed up your VAT registered business for Making Tax Digital yet, you’ll likely receive one.
And rather than waiting, it’s best to make the change to your processes now. That starts with registering for MTD for VAT.
More details on that below…
How to register for a VAT account and submit a VAT Return online
If the taxable turnover of your business is under the VAT threshold and you’ve not already registered voluntarily for VAT, now might be the time.
Registering means you can reclaim VAT on things you purchase for your business.
Many businesses register voluntarily because it makes their operation appear more professional – especially when selling to other businesses.
The goal of Making Tax Digital for VAT is to simplify VAT accounting. So if you’ve been put off previously by the admin requirements of VAT accounting, it’s a great opportunity.
You can register for VAT online, or your accountant can do it for you. If doing it yourself, you’ll need to create a Government Gateway account for your business (if you don’t already have one).
Once you’ve registered for VAT, you’ll be sent your VAT number that you should then quote on your VAT invoices.
You should start accounting for VAT from the date that HMRC registers you.
Once you have your VAT number, you can also submit a VAT Return online when the time comes.
What you need to register for MTD for VAT
To register for MTD for VAT, you’ll need gather together a few bits of information:
- The email address you use for your business
- The Government Gateway ID you use for the business
- Your VAT registration number
- Your latest VAT Return
- Your National Insurance number if you’re a sole trader
- Your company registration number and Unique Taxpayer Reference (UTR) if registering a limited company.
How to register for MTD for VAT
You need to choose the software you intend to use before signing up for MTD for VAT.
You can register for MTD for VAT by clicking register for MTD at the Gov.uk website, then answer the questions, which will involve providing the information mentioned earlier.
There are limitations on when you can sign up – this stops you accidentally making a double payment for your current return.
You should not sign up less than seven days before your VAT Return is due, or less than five days after your VAT Return is due.
You should receive confirmation from HMRC within three days.
The MTD for VAT features in your accounting software need to be activated once you know your sign up details, as provided by HMRC.
Therefore, activation won’t be automatic. Speak to your software vendor if you’re unsure of what’s required.
Can my accountant register for MTD for VAT for me?
Yes. Just ask them to do so on your behalf.
But bear in mind that this doesn’t mean you can ignore MTD for VAT’s requirements.
You still need to store your key VAT accounting records digitally and use software for your VAT accounting – even if your accountant then calculates your VAT bill and submits the VAT Return on your behalf.
Your accountant may ask that you link your accounting software with theirs.
How to ask to be digitally exempt from MTD for VAT
It’s not possible to opt out of MTD for VAT.
However, some businesses have genuine reasons why they’re unable to comply with Making Tax Digital.
These include the following:
- Reasons of age, disability, remoteness of location or, in HMRC’s words, “any other reason” that means it’s not “reasonably practicable” for the business owner to use digital tools to keep business records or submit returns. For example, a business without an internet connection because it’s on an island that’s off the grid might be considered exempt.
- Religious beliefs are incompatible with the requirements of MTD for VAT. This is typically that the individuals running the business are unable to use computers because of their beliefs.
To apply for exemption, call HMRC’s VAT helpline to discuss the situation and arrange alternative measures.
It’s important to note that if HMRC believes exemption isn’t appropriate, it may offer digital assistance to help your business get online support.
Can I deregister from VAT to avoid MTD for VAT?
Any VAT-registered business can ask to cancel their VAT registration with HMRC if they’re not eligible anymore or if taxable sales drop below the £83,000 deregistration threshold.
HMRC says it takes three weeks for the cancellation to be confirmed.
This will include confirmation of the cancellation date, which you will already have set with HMRC. Typically, this is the date on which you make the request.
Up to that date, you should continue to observe VAT requirements.
You’ll need to submit a final VAT Return for the period up to the cancellation date.
This must account for stock and assets you have at the cancellation date if you could reclaim VAT when you bought them, and if the total VAT due is over £1,000.
Final thoughts on MTD for VAT
Now you know how to register for Making Tax Digital for VAT, you can take the steps to do so for your business.
And by using software to manage your VAT accounting, you’ll be able to revolutionise your processes.
Need more help with MTD for VAT?
Speak to your accountant about the requirements – they can help you examine processes in your business to see what needs to be adapted.
Editor’s note: This article was first published in September 2021 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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