MTD (Making Tax Digital) for VAT is the UK government’s initiative to digitise and modernise the UK tax system. It requires businesses to keep digital records and submit VAT returns using compatible software.
Businesses registered for VAT must sign up to Making Tax Digital, use compatible software to keep records and submit VAT returns from 1st November 2022 onwards, with exemptions provided in cases of age, disability or objections to using computers on religious grounds.
Making tax digital only applied to VAT-registered businesses with taxable turnover above the VAT threshold from April 2019 to October 2022. The remaining VAT-registered businesses were brought into the regulations in November 2022.
MTD for VAT was the first tax to come under making tax digital. HMRC does intend to roll making tax digital out to other taxes, including income tax and corporation tax, in the future.
What is Making Tax Digital for VAT?
Making tax digital for VAT is the requirement for keeping digital records and submitting VAT returns using compliant software.
MTD for VAT is designed to make it easier for businesses to comply with their VAT obligations by streamlining the record-keeping process and submitting VAT returns. By keeping accurate digital records, businesses can reduce the risk of errors and save time on their VAT compliance activities.
Spotlight Accounting is here to ensure our clients meet their VAT obligations and help complete, send and pay your VAT returns promptly.
Do all VAT-registered businesses need to be MTD?
All VAT-registered businesses must file VAT returns under making tax digital (MTD). The only exception is for the digitally exempt.
Businesses that are digitally exempt on the grounds of location, disability or religion can apply to HMRC to ask for an exemption from MTD for VAT.
When did MTD for VAT become mandatory?
For VAT-registered businesses with a taxable turnover above the VAT registration threshold, making tax digital for VAT became mandatory from April 2019.
All other businesses came into MTD for VAT from 1st November 2022, regardless of taxable turnover.
Under MTD for VAT, digital accounting records need to:
- Be kept in a digital format such as spreadsheets, accounting software or other software that is capable of recording and preserving digital information.
- Contain permanent data such as the business name, place of business, VAT registration number and details of VAT accounting schemes used.
- Contain transactional data including date, amount, VAT rate, VAT charged and VAT that can be recovered.
- Be stored for at least six years.
- Be preserved in a readable digital format and can be provided to HMRC upon request.
Submitting VAT returns using compatible software products
In most cases, VAT-registered businesses will use MTD-compatible software such as Xero for VAT online filing.
The software must be able to transfer data through the making tax digital VAT account. Spreadsheets alone are not compatible with the digital tax account, and bridging software is needed as an add-on.
What accounting software is compatible with MTD for VAT?
Most accounting software is MTD compliant as a result of the introduction of MTD VAT in 2019.
Our team at Spotlight Accounting has a personal preference for Xero, the cloud-based MTD software. Xero is an excellent choice for businesses of all sizes as this software makes keeping VAT accounting records straightforward; it is intuitive to use and can even save you time by automating your business processes. Xero can modify to fit your business perfectly, and you can access it wherever you may be, whenever you need it.
We’re not fans of using spreadsheets with bridging software for accounting, as manual input can lead to mistakes, take more time to record business records and require additional third-party software. We think it’s worth investing in a reliable solution rather than opting for a cheaper option in order to ensure accuracy with your taxes.
File your VAT returns digitally with Spotlight Accounting
At Spotlight Accounting, our team can prepare and file your VAT returns on your behalf. We can also make sure that you take advantage of any VAT accounting schemes that are suitable.
Using Spotlight guarantees that your VAT documents are precise and that you don’t miss out on claiming additional assistance or incorrectly claiming VAT.
Whilst ultimately businesses remain responsible for their own business and tax affairs, VAT regulations are a minefield, so using Spotlight Accounting to deal with your VAT returns gives you peace of mind that everything is dealt with and safely in hand.
Whilst we help with the other stuff that stops the tax man knocking at the door, such as corporation tax returns, income tax self-assessment, payroll and management accounts, we also like to understand your business’s goals and work with you to help achieve these.
Frequently asked questions about Making Tax Digital for VAT
To learn more about the services that Spotlight can offer or about MTD for VAT, contact us today! Check out our frequently asked questions here:
Can I opt out of making VAT Digital?
Unfortunately, you can not opt out of making tax digital. Under VAT rules, unless you are exempt, all VAT businesses must comply with MTD for VAT.
Who is exempt from MTD for VAT?
No business is automatically exempt from making tax digital. The only exception is for the digitally exempt, and HMRC is not automatically allowing businesses to decide this. This is done via an application to HMRC. Even non-UK businesses registered for VAT must comply.
Unfortunately, whether we like it or not, MTD for VAT is here to stay and will roll out to other taxes in the near future.
While it may seem like another burden on your business, using accounting software such as Xero keeps your business compliant with making tax digital and can also give your business the digital tools it needs to grow.
Xero isn’t just about submitting tax returns and making sure you are making tax digital compliant; it can also give you critical information about your business in order to help you achieve your goals quicker.
If you’re a landlord, earn more about Making Tax Digital here: