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Making Tax Digital

Making Tax Digital (MTD) was introduced for VAT from 1 April 2019. Below we are answer some MTD FAQs.

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, there is no requirement to comply with MTD.  There is currently no timetable provided by HM Revenue & Customs (“HMRC”) as to when all VAT registered businesses will need to comply. However, if you voluntarily opt into MTD, you will need to comply with all the requirements.

What is the deadline for MTD?

For the majority of VAT registered businesses, the MTD rules come into force from the first VAT return that commences on or after 1 April 2019. For example, if you file quarterly VAT returns for February – April 2019 and May 2019 – July 2019, the accounting records must be maintained in accordance with the MTD rules from 1 May 2019 and the VAT quarter ending 31 July 2019 will need to filed using MTD compatible software.  The VAT return for the quarter ending 30 April 2019 will be filed under the old system.

For some businesses, the commencement date for MTD has been deferred until 1 October 2019.  This is for VAT registered businesses that fall into the following categories:

  • Trusts
  • Not-for-profit organisations that are not companies (this includes some charities)
  • VAT divisions
  • VAT groups (the deferral applies to the group registration only and not to any group companies that are not covered by the group registration)
  • Public sector entities that are required to provide additional information alongside their VAT return (such as Government departments and NHS Trusts)
  • Local authorities and public corporations
  • Traders based overseas
  • Those required to make payments on account
  • Annual accounting scheme users.

If you believe you are entitled to the October 2019 commencement date, you should have received a confirmation letter from HMRC.  This letter should be retained as they have legal standing and the deferral period does not apply unless you have received this letter.  If you believe that the deferral period applies to you, but you have not received a letter you should contact the VAT helpline.

When should I sign up?

You should sign up to MTD once the last VAT return under the old system has been filed i.e. if your VAT returns are on calendar quarters, you should wait until after the 31 March 2019 VAT return has been filed, which will be due by 7 May 2019.

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 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.

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