Does MTD for VAT affect me?

If your business is registered for Value Added Tax (VAT) you will need to submit your VAT returns using something called ‘functional compatible software’ from 1 April 2019. 


You won’t be able to submit your returns manually on the HMRC website any more. This is part of the Making Tax Digital (MTD) initiative.


Nothing else about your VAT return will change:

•   the VAT rules are the same

•   you will complete the same nine boxes that are included on your current VAT return, although you can submit some additional information voluntarily

•   the filing and payment deadlines are the same.

When should my business be registered for VAT?

If the ‘VATable’ turnover of your business is more than £85,000, which is the current threshold, you should be registered for VAT


If your business is approaching the VAT threshold it would be worth asking for some advice from your bookkeeper, accountant or tax advisor.

What difference will 

MTD make?

If you have always used spreadsheets or other manual records for your VAT return, you will need to make some changes. 


Ask for some advice on the software you will need to store VAT information, and to prepare and file your returns.

Do I have any choice about MTD for VAT?

Some businesses can claim exemption from MTD for VAT if:

•   religious beliefs are incompatible with the requirements

•   age, disability or remoteness mean it’s not reasonably practical.


Insolvency procedures also affect MTD for VAT.  If any of these apply to you then alternatives will need to be arranged.

How do I prepare for MTD?

Check - If your business is new or growing quickly then it will be a good idea to check whether your expected turnover for the remaining VAT period will go over the VAT threshold.


Also check how you currently produce invoices and keep track of expenses. You can still use paper systems but each invoice will also need to be included in your MTD-compatible system, so you might want to streamline your approach to avoid duplication.


Data - You will be expected to keep some VAT information digitally. If you use one system to store your VAT information and another to prepare your VAT return, they will need to be linked. It’s a good idea to check the requirements and to be prepared for this in advance.


Technology – If you are using up to date accounting software you shouldn’t have too many problems getting ready for MTD. If your software is more than a year old, you will need to check whether it is ‘functional compatible software’.

What is ‘functional compatible software’?

The software you use to keep your digital VAT records will have to communicate with the HMRC’s systems to allow you to file your VAT returns.


If your accounting software is only installed on your office computer you might need to update it.


If you’re using cloud-based accounting software and can access your VAT data at any time and from anywhere it will probably automatically update to meet the requirements for MTD.


Check with your supplier in advance to confirm that your software will meet the requirements of MTD for VAT.

For your information...

A small number of organisations will not start MTD for VAT until October 2019, including businesses required to make payments on account, annual accounting scheme users, trusts, and not-for-profit organisations that aren’t set up as a company.


MTD for income tax for self-employed people, partnerships and people who receive income from property could be introduced from April 2020, although the regulations have not yet been agreed.


You can find more helpful information on the Chartered Institute of Taxation website.