Making Tax Digital

Making Tax Digital compulsory for VAT registered business

Making Tax Digital compulsory for VAT registered business


VAT threshold for Making Tax Digital

Since 2019, VAT registered businesses with a turnover above the VAT registration threshold of £85,000 have needed to keep their records digitally. It provide their VAT return information to HMRC through Making Tax Digital compatible software.

Those VAT registered businesses with VAT threshold below the VAT registration threshold were exempted from the initial phase MTD.

Will you be impacted by Making Tax Digital for VAT in April 2022?

VAT registered businesses that are not already required to operate Making Tax Digital (MTD) under the requirements applying from 1 April 2019 will have to:

  • keep their records digitally (for VAT purposes only)
  • provide their VAT return information to HMRC through Making Tax Digital compatible software

This will be effective from your first VAT return period starting on or after 1 April 2022. For example, if you are registered for quarterly VAT and that period runs from 1 June to 31 August. Your August quarter end data which is due to be submitted by 7th October 2022 will need to be maintained and submitted digitally through compliant software to HMRC.

Who is entitled to claim exemptions and deferrals from MTD for VAT?

People with certain disabilities, those in rural locations with poor broadband services. Those who are digitally excluded for other reasons such as religion may find it more difficult to comply. You may need to write to HMRC to obtain a formal exemption.

Businesses that are already exempt from engaging with HMRC through other mandatory digital channels. Those will continue to be exempt and will not have to meet the obligations of MTD.

Does this affect other taxes?

Currently MTD only affects VAT. However future making tax digital phases are planned for income tax for accounting periods beginning on or after 6 April 2023 and for Corporation tax from no earlier than 2026.

We will keep our clients and contacts up to date. When more information is released about these future changes.


Is your current software functionally compatible for MTD for VAT?

You will need to use software that is compatible with HMRC’s Making Tax Digital for VAT regime such a FZCOVAT. If you are unsure about what software is compatible for Making Tax Digital. You can check on the Government’s website here. You must also ensure that your software can communicate electronically with HMRC’s portal. So you that you can file your VAT returns electronically.


Why is Making Tax Digital compulsory?

Here is the HMRC explanation for Making Tax Digital:

Making Tax Digital is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs.

HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world.  Making Tax Digital is making fundamental changes to the way the tax system works – transforming tax administration so that it is:

  • more effective
  • more efficient
  • easier for taxpayers to get their tax right

MTD software

Although you might believe that the fundamental change is just to make things easier for taxpayers. You can see that the most digitally advanced tax administration will find it much easier to monitor tax and find out where records don’t match.  This could mean that if someone submits a return showing a VAT expense from your business. HMRC will be able to look up your VAT return to make sure there is a matching sales invoice in your business.  The technology is still a long way from being able to do this. But with advances in Artificial Intelligence and HMRC’s aspiration to be the most most digitally advanced tax authority. You can only guess where everything is heading.