Making Tax Digital now applies to all VAT-registered businesses
From April 2022, Making Tax Digital for VAT requires all VAT-registered businesses to keep records digitally and file their VAT returns using software.
The software businesses use must be capable of:
If your digital records are up to date, the software will be able to collate and prepare your return for you. It will show you the return and ask you:
Once you’ve submitted your return, you’ll receive confirmation through your software that it has been received.
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.
The following records must be kept digitally:
You also need to keep digital copies of documents that cover multiple transactions made on behalf of your business by:
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:
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.
Exemptions are available if businesses can show that it is not reasonable or practical to use computers, software, or the internet to comply with MTD rules. Although not an exhaustive list, it could be due to:
You’re automatically exempt from Making Tax Digital for VAT and do not need to apply if:
Exemptions will not be granted solely based on extra effort, time or cost.
Applications for exemption must be submitted to HMRC with detailed reasoning for the exemption request.
To apply, call or write to HMRC. You’ll need:
You’ll get a letter with HMRC’s decision. Until then, continue filing VAT returns the way you usually do.
You may find it helpful to read these notices on related subjects:
VAT Notice 700: VAT guide
VAT Notice 700/21: keeping VAT records
VAT Notice 700/1: should I be registered for VAT?
VAT Notice 700/12: filling in and submitting your VAT Return
VAT Notice 700/45: how to correct VAT errors and make adjustments or claims
VAT Notice 718: the Margin and Global Accounting Scheme
VAT Notice 727: retail schemes
VAT Notice 733: Flat Rate Scheme for small businesses
VAT Notice 701/21: The special accounting scheme for gold transactions
VAT Notice 709/5: Tour Operators Margin Scheme for VAT
Make sure you’ve read the notices relevant to your circumstances before you submit your VAT Return.