The new way to file your VAT returns: get ready for Making Tax Digital now

This article has been exclusively written and provided by HMRC

The way businesses file Value Added Tax (VAT) returns has changed. HM Revenue and Customs (HMRC) is reminding businesses that they should now be signed up to Making Tax Digital (MTD) for VAT, keeping digital business records and filing all VAT returns using MTD-compatible software – that includes small businesses like yours.

By law all VAT-registered businesses must now sign up to MTD and use compatible software to keep their VAT records and file their returns. The aim is to help businesses get their tax right first time, boost productivity, and support the UK to go digital. Over 1.79 million businesses are already benefitting from the service.

From 1 November, businesses who file their VAT returns on a quarterly and monthly basis will no longer be able submit them using their existing VAT online account, unless HMRC has agreed they are exempt from MTD. HMRC is writing to businesses reminding them of the change.

If businesses do not file their VAT returns through MTD, they may have to pay a penalty. Even if a business currently keeps digital records, they must check their software is MTD compatible and sign up for MTD before filing their next return.

To comply with MTD for VAT, businesses or an agent acting on behalf of a business who are already VAT- registered need to follow four simple steps to sign up:

  • Choose MTD-compatible software. There are free options available – you’ll find a list of software compatible with MTD for VAT here.
  • Give your software permission to work with MTD. You can find out how to manage permissions for tax software here.
  • Keep digital records for current and future VAT returns. Check what records you need to keep.
  • Sign up to MTD. Find out how to sign up

More than 19 million returns have been successfully submitted through MTD so far, with businesses reporting that MTD has increased their confidence in managing their tax affairs and using technology.

Independent research has shown that using MTD helps businesses reduce errors and is making it faster for businesses to prepare and submit returns. A recent annual survey including small businesses found that eight-in-ten already use record keeping software on a computer, and just over six-in-ten said digital record keeping makes preparing and submitting a tax return easier. Case studies of those benefitting from MTD, which also include small businesses, can be found here.

If you’re already exempt from filing VAT returns online or if you or your business are subject to an insolvency procedure, you don’t need to do this. There may be other reasons why it’s not practical for you to meet MTD requirements, in which case you can apply for an exemption. HMRC considers each application on a case-by-case basis. You can find more information on exemptions from MTD here. HMRC will consider each application on a case-by-case basis.

If you are a new business that is not yet registered for VAT, you will automatically be signed up for MTD while registering for VAT through HMRC’s new VAT Registration Service (VRS). Registering via this online service not only means a faster VAT registration and improved security, but also helps new businesses have a better customer experience and put themselves in a position to be fully compliant with MTD requirements from Day 1 – although you will still need to get the right software.

 What you need to know about signing up:

  • Businesses must sign up at least 5 days after their last non-MTD VAT return deadline date, and no less than 7 days before their first MTD VAT return deadline date to avoid paying for their VAT twice.
  • Where a business chooses to use bridging software (a type of MTD compatible software which extracts information from a business’s spreadsheet or legacy software and then submits it to HMRC in a way which is compliant with MTD requirements) digital links must be in place to ensure that records are kept digitally as information is transferred between different platforms. More information can be found here.
  • Businesses must keep digital records from their first VAT accounting period that starts on or after 1 April 2022.
  • For non-VAT registered businesses, register through the VAT Registration Service (VRS) and you will automatically be signed up for MTD.

What support is available for businesses?  

  • Businesses can register themselves or ask their agent or accountant to support them in signing up to MTD and choosing the right software, although businesses will remain responsible for meeting their VAT obligations.
  • A range of accessible help is available online through GOV.UK, webinars and videos as well as through HMRC’s Extra Support Service.
  • Thousands of people have also benefitted from HMRC’s live webinars, which offer support on filing digitally and explain how it can help businesses.
  • HMRC is continuing to communicate directly with businesses and agents to support them as they transition to MTD for VAT.

What financial help is available?