Making Tax Digital for VAT is coming ― are you ready?

VAT-registered businesses have just one month left to register for MTD

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In July 2020, it was announced that all VAT-registered businesses must file digitally through Making Tax Digital (MTD) from April 2022, regardless of turnover.

HMRC urges VAT-registered businesses to sign up for Making Tax Digital for VAT before 1 April 2022.

MTD means that certain persons must not only submit VAT returns digitally using MTD-compatible software, but also must keep records in a digital format, which enables information to be provided to HMRC directly from the accounting system, or via bridging software, through application programme interfaces (APIs), which can also receive information from HMRC.

MTD aims to tackle that part of the tax gap caused by error and failure to take reasonable care, by removing opportunities to make certain types of mistakes in preparing and submitting tax returns.

Records that must be kept digitally

The following records must be kept digitally:

  • business name, address and VAT registration number
  • any VAT accounting schemes you use
  • the VAT on goods and services you supply, for example everything you sell, lease, transfer or hire out (supplies made)
  • the VAT on goods and services you receive, for example everything you buy, lease, rent or hire (supplies received)
  • any adjustments you make to a return
  • the ‘time of supply’ and ‘value of supply’ (value excluding VAT) for everything you buy and sell
  • the rate of VAT charged on goods and services you supply
  • reverse charge transactions - where you record the VAT on both the sale price and the purchase price of goods and services you buy
  • your total daily gross takings if you use a retail scheme
  • items you can reclaim VAT on if you use the Flat Rate Scheme
  • your total sales, and the VAT on those sales, if you trade in gold and use the Gold Accounting Scheme.

You also need to keep digital copies of documents that cover multiple transactions made on behalf of your business by:

  • volunteers for charity fundraising
  • a third-party business
  • employees for expenses in petty cash.

You must add all your transactions to your digital records, but you do not need to scan paper records like invoices or receipts.

The business will need to use a compatible software package or other software that connects to HMRC systems.

If you use more than one software package to keep records and submit returns, you need to link them.

Some ways you can link your software include:

  • using formulas to link cells in spreadsheets
  • emailing records
  • putting records on a portable device to give to your agent
  • importing and exporting XML and CSV files
  • downloading and uploading files.

Businesses can find help and support on how to sign up for Making Tax Digital. Agents can sign up on behalf of a business, although businesses remain responsible for meeting their VAT obligations. Those who do not join may be charged a penalty for failure to do so.

HMRC is running a series of webinars for businesses that need help and support on signing up for Making Tax Digital. More information can be found on HMRC’s Making Tax Digital help page.

Further resources

ACCA MTD Hub