Will Farmer FMAAT 
January 22, 2022

Making Tax Digital (MTD) for VAT

What is Making Tax Digital (MTD) for VAT?

Since 1st April 2019, VAT registered businesses have had to keep their VAT records digitally and submit their VAT returns to HMRC through ‘MTD compatible software’ such as Xero, QuickBooks, FreeAgent and other software.

MTD for VAT was the first stage of MTD to be launched by HMRC. 

Which businesses does MTD for VAT apply to?

Initially MTD for VAT rules only applied to businesses with a turnover of more than £85,000 per year (the VAT mandatory registration threshold) but has been extended to all VAT registered businesses regardless of turnover from 1st April 2022.

More information on record keeping (www.gov.uk/guidance/records) and MTD compatible software (www.gov.uk/guidance/software).

There are some exemptions from MTD for VAT for the 'digitally excluded', those who cannot use digital tools for reasons of religion, age, disability or geographical remoteness.

When do MTD VAT returns need to be submitted by?

VAT returns are required to be submitted to HMRC quarterly via MTD compataible sofware for most VAT schemes, with payments due to HMRC one month and seven days after the VAT period end date.

For example, for the VAT period ending 31st March - VAT payment and MTD VAT submission would be due by 7th May.

What records should businesses keep for MTD for VAT?

As with non-MTD VAT registered businesses, VAT records must be kept for at least six years. VAT records can include sales invoices, purchase invoices, business bank statements and a record of past VAT returns with relevant VAT calculations.

What can I do to make the transition to MTD for VAT easier?

I recommend using ‘MTD compatible software’ such as Xero, QuickBooks and FreeAgent to keep VAT records stored digitally. This has dual benefit of complying with MTD for VAT regulations as well as making records easy to access and available online.

MTD compatible software enables VAT returns to be submitted to HMRC directly via the software, it will also keep a record of VAT returns and payments.

Working with a good accountant will assist your business in staying compliant with MTD for VAT as well as ensuring VAT returns are completed correctly. It is important to apply the correct VAT to sales invoices and to reclaim any VAT the business is entitled to on expenses.

Are there any plans to extend MTD to other taxes?

Yes, you can find more details about the extension of MTD to other taxes in the blog section of this website.