What is MTD for VAT and which businesses are affected?

Making Tax Digital for VAT (MTD for VAT) is part of the much wider MTD programme that in time will cover other areas of tax submissions and payments. It is the first to be fully implemented and will affect all businesses over the VAT threshold.

MTD for VAT represents the start of the implementation of HMRC’s long-held goal to move businesses (and in time individuals) over to digital record keeping. The rationale here is to make it easier for people to keep on top of their daily accounts, taxes and financial affairs. It’s also no secret that HMRC wants to become one of the most digitally advanced tax administrations in the world.

From 1 April 2019, the bulk* of VAT-registered businesses with a taxable turnover above the VAT threshold (currently £85,000) will need to:

Keep their records digitally (for VAT purposes only), and
Provide their VAT return information to HM Revenue and Customs (HMRC) through Making Tax Digital (MTD) functional compatible software

*Note: Roughly 3.5% of VAT-registered entities will be mandated into MTD for VAT from 1 October 2019 instead. These complex organisations include: trusts, not-for-profit organisations that are not companies (including some charities), VAT divisions, VAT groups, those public sector entities required to provide additional information alongside their VAT return (such as government departments and NHS Trusts), local authorities, public corporations, traders based overseas, those required to make payments on account and annual accounting scheme users.

On this page, we have answered the following questions to help you prepare for MTD for VAT.

HMRC has also published a Stakeholders Communication Pack and a Guide for Businesses to help businesses of all sizes, and their advisers, understand and prepare for MTD for VAT.

Their public pilot officially launched in October for some businesses

Is my business affected by MTD for VAT?

If you are a VAT-registered business with a taxable turnover above the VAT threshold (currently £85,000) then yes, you will need to comply with MTD for VAT.

Be aware that if you count as an organisation with more complex VAT arrangements (such as: trusts, not-for-profit organisations that are not companies (including some charities), VAT divisions, VAT groups, those public sector entities required to provide additional information alongside their VAT return (such as government departments and NHS Trusts), local authorities, public corporations, traders based overseas, those required to make payments on account and annual accounting scheme users) then your mandation for MTD for VAT has been deferred to 1 October 2019 instead.

Are there any MTD for VAT exemptions?

Aside from business turnover being below the threshold, HMRC has indicated there are MTD for VAT exemptions for the following circumstances:

Religious beliefs are incompatible with the requirements of MTD for VAT (for example individuals running the business are unable to use computers because of their beliefs).
Age, disability or remoteness of the location which means it’s not “reasonably practicable” for the business owner to use digital tools to keep business records or submit returns. For example, a lack of internet supply due to the business’ location and broadband availability.
The business is subject to insolvency procedures.

To apply for an exemption, contact HMRC’s VAT Helpline. Be aware that, if HMRC believes an exemption isn’t appropriate, they may offer assistance to help the business get online support.

Does my current VAT filing date change?

The deadlines for sending VAT returns and making payments are not changing, and that goes for monthly, quarterly and annual VAT return schemes. Whilst MTD for VAT won’t change your current VAT filing deadlines, you need to be clear which of your filing periods will move you into MTD for VAT compliance. For those businesses with the 1st April 2019 mandation date, this will be the first full VAT period that starts on or after 1 April 2019.

After this point (and if you fall into HMRC’s requirements for MTD for VAT submissions), you won’t be able to complete paper-based returns or manually complete your VAT return online using the previous HMRC VAT portal.

The legislation in place for MTD for VAT

The Finance Bill 2017 published on 8 September 2017 included legislation allowing the introduction of Making Tax Digital for VAT. This legislation gave HMRC’s commissioners the powers to introduce regulations, which will set out the detailed requirements that businesses will have to meet.

In July 2018 HMRC published its VAT Notice 700/22 Making Tax Digital for VAT which finally provided clarity on how MTD for VAT will run, along with examples and guidance on rules.

In short, from 1 April 2019, the bulk* of VAT-registered businesses with a taxable turnover above the VAT threshold (currently £85,000) will need to:

Keep their records digitally (for VAT purposes only), and
Provide their VAT return information to HM Revenue and Customs (HMRC) through Making Tax Digital (MTD) functional compatible software

*Note: Roughly 3.5% of VAT-registered entities will be mandated into MTD for VAT from 1 October 2019 instead. These complex organisations include: trusts, not-for-profit organisations that are not companies (including some charities), VAT divisions, VAT groups, those public sector entities required to provide additional information alongside their VAT return (such as government departments and NHS Trusts), local authorities, public corporations, traders based overseas, those required to make payments on account and annual accounting scheme users.

HMRC Guidance

HMRC has published a Stakeholder Communication Pack and a Guide for Businesses to give a more user-friendly explanation of MTD for VAT which, for example, agents can use to help their clients prepare. In October 2018 they launched a public pilot with additional information for Agents and Businesses who want to get involved.

These were software developers who had satisfactorily completed the below:

tested their products in HMRC’s test environment
already demonstrated a prototype of their software to HMRC
proved their software was able to comply with HMRC’s rules and guidelines

Having worked very closely with HMRC over the past two years to road-test the MTD technology, we are delighted that MTDfVAT is in HMRC’s list of approved MTD for VAT software developers. Take a look at our MTD for VAT-compatible software.

So what’s involved in order to comply with MTD for VAT?

Digital record keeping

MTD for VAT isn’t just about digitally filing VAT returns. HMRC wants businesses to keep and store records digitally. This means having digital income and expenditure records.

You do not need to keep any additional business records because of MTD. However, business records must be kept digitally to be compliant. If you use spreadsheets, the spreadsheets must be able to submit the required data to HMRC digitally, for example, by using MTD-compatible bridging software such as MTDfVAT.

HMRC’s VAT Notice 700/22 specifies what VAT records must be kept digitally. There’s also guidance from HMRC here. Typically for most businesses, this needs to include:

The business name
The address of their principal place of business
Their VAT registration number
Details of any VAT accounting schemes that they use

Most businesses will also need to record for each invoice they issue the time and date of supply (tax point date), the net value and the VAT rate used to calculate VAT. Be aware that the VAT scheme the business uses, and specific business circumstances may require you to keep more or less information under MTD for VAT.

The MTD for VAT submission

The MTD for VAT submission still requires a business to complete the same nine boxes of information as the current submission. The difference is that the submission has to be done digitally using HMRC-defined compatible software. You won’t be able to use HMRC’s own VAT Software any more.

MTD for VAT-compatible software

In October 2018, HMRC announced a list of Software Suppliers Supporting MTD for VAT. These were software developers who had satisfactorily…

Tested their products in HMRC’s test environment
Already demonstrated a prototype of their software to HMRC
Proved their software was able to comply with HMRC’s rules and guidelines

Having worked very closely with HMRC over the past two years to road-test the MTD technology, we are delighted that MTDfVAT is in HMRC’s list of MTD for VAT software providers and our products were recognised as MTD for VAT-compatible.

Authorising your account with HMRC for MTD for VAT

Businesses and Individuals will need to go through a new authorisation process with HMRC’s Government Gateway. It is relatively quick to set up and find out more here on the steps involved.

Making Tax Digital for VAT – What is it