Making Tax Digital for VAT: Recent and upcoming changes

April 2021 – Digital links

The VAT rules require that throughout the VAT return preparation there are digital links end-to-end.  During the initial implementation, HMRC allowed a soft-landing period for this requirement.  This soft-landing period ends on the first VAT return period starting on or after 1 April 2021.

Read more on digital links below.

April 2022 – all VAT businesses to comply

 Currently only business with VATable turnover over £85,000 need to comply with MTD.  However, from April 2022 all VAT registered businesses will need to sign up and comply with the requirements.

Who needs to comply with MTD for VAT?

Businesses with VATable turnover in excess of £85,000 need to comply with the requirements for MTD. This includes ‘turnover’ from reverse charge.

If your VATable turnover is below £85,000, you will need to register and comply from 1 April 2022.  However, if you voluntarily opt into MTD ahead of this date, you will need to comply with all the requirements.

What are Digital Links?

A “digital link” is one where the transfer of data is electronic as opposed to manual.  The principle being that no data in connection with the VAT return is manually copied or re-keyed.

HMRC accepts that the following are digital links (non-exhaustive):

• XML, CSV import and export and download and upload of files
• API transfer
• Automated data transfer
• Emailing a spreadsheet containing digital records

Do I need to change my software package?

If you are already using a software package, ask your vendor if it is MTD compatible. You may need to upgrade or install an add-on to enable the functionality. If it is not compliant and/or you are not able to upgrade, you can either change your package, or export the relevant VAT return information to excel and use bridging software each quarter.

Can I use excel spreadsheets?

If your excel spreadsheets contain sufficient information to comply with the MTD accounting records requirements there is no need to change to accounting software. You will need to use bridging software to submit your VAT returns to HMRC.

Notwithstanding the above, you may wish to use this opportunity to move to an accounting software package, to provide you with more real time management information, which may assist when making business decisions.

Do I need to keep my invoices in an electronic form?

No, you can maintain your invoices and underlying documents in paper form should you wish.

What information does HMRC receive?

HMRC only receive the same information contained in the 9 boxes that are on the VAT return.  They do not receive the detailed listing of transactions as part of the quarterly submission.

What do I show in my accounting records for mixed supplies?

Where you need to apportion the output tax due on a mixed rate supply with a single inclusive price you do not have to record these supplies separately. You can record the total value and the total output tax due.

Not all software will allow you to record a rate of VAT other than the standard, reduced or zero/exempt. If this is the case, this mixed supply should be recorded as either one standard rated supply and one zero rated supply, or you can record the sale at one rate and correct the VAT through an adjustment at the end of the period. You will also need to do this if you are using a margin scheme or the flat rate scheme.

When should I sign up?

If your VATable turnover exceeds £85,000 per annum you should already be registered for MTD.

If your VATable turnover is below £85,000, this should be checked on a rolling 12-month basis.  Should you exceed the threshold, you will need to register and comply with the first VAT return commencing after you exceed the threshold.

Finally, if you remain below the threshold, you should register in April 2022.

Useful links

• Sign up for Making Tax Digital for VAT
• Check when a business must follow the rules for Making Tax Digital for VAT
• Find software that’s compatible with Making Tax Digital for VAT
• VAT Notice 700/22: Making Tax Digital for VAT