Making Tax Digital for VAT

31 July 2023

Making Tax Digital (MTD) is the new government strategy to digitalise HMRC and the tax system. It should make tax easier to process, improve accuracy and integrates a range of systems, ultimately ensuring HMRC collects all taxes owed.

Making Tax Digital for VAT is the first part of the strategy and was introduced in 2019, standard practice as of 2022. HMRC no longer except paper VAT returns, unless very specific points are met, such as objecting to use of computers on religious grounds, or unable to due to a disability.

MTD means you can only submit VAT returns via compatible software, such as Xero, Quick Books or Sage. All accounting transactions are included in the software and therefore automatically transferred to HMRC. In theory this helps reduce errors and ties in the accounts to the submitted VAT returns.

HMRC and the software digitally connect using the Government Gateway account. HMRC feeds the time period data to the software and the software feeds back the data to include. The software will also automatically feedback any amendments to a previously filed return, even if outside of the current VAT quarter, these are called Late Claims.

In practice MTD for VAT works, however it has put pressure on smaller businesses who may not be familiar with the software package or how they work. There is software available to submit VAT returns via MTD using excel. Also, as with most changes, the registering and transitioning over to MTD was a challenge. Going forward all new business who register for VAT should also be registered for MTD.

Please get in touch if you have any queries about MTD for VAT.

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