What is Making Tax Digital for VAT?

Updated on 5 June 2019

Self-employment

In April 2019, HM Revenue & Customs’ (HMRC) first phase of their ‘Making Tax Digital’ programme was introduced, and this is known as ‘Making Tax Digital for VAT’.

There are two elements to the new Making Tax Digital (MTD) for VAT rules. These are:

  1. a requirement to keep business records digitally
  2. a requirement to file the quarterly VAT return using API (‘application programming interface’) enabled software

Does the Making Tax Digital for VAT regime apply to me?

The new regime applies to all businesses who are VAT registered because the level of their turnover requires them to be, unless they are exempt. Therefore, it does NOT apply if you are voluntarily registered for VAT.

See our news article Making Tax Digital for VAT – are you ready? for more information.

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Who is exempt from the Making Tax Digital for VAT rules?

If you are already exempt from filing your VAT returns online then you continue to be exempt and you do not need to reapply for exemption. Otherwise, exemption from the Making Tax Digital (MTD) for VAT programme is available if you meet one of three criteria:

  1. It is not ‘reasonably practicable’ for you to use digital tools to keep your business records or submit your VAT Returns because of age, disability, remoteness of location or for any other reason
  2. you or your business are subject to an insolvency procedure
  3. your business is run entirely by practising members of a religious society or order whose beliefs are incompatible with using electronic communications or keeping electronic records

HMRC have produced guidance on claiming exemption from MTD for VAT. If you wish to claim exemption you should read the guidance and then contact HMRC either by phone on the VAT helpline on 0300 200 3700 (textphone 0300 200 3719) or by writing to:

HMRC – VAT Written Enquiries, Portcullis House, 21 India Street, Glasgow, G2 4PZ.

You must fully explain the reasons why you believe you meet one of the criteria given above and then HMRC will write to you to advise whether or not your claim has been successful. If it is not successful you may be able to appeal against the decision and the way to do this will be set out in HMRC’s response to you. You do NOT have to comply with the new MTD for VAT rules while your claim is being considered or while an appeal is being made.

If a claim for exemption is ultimately unsuccessful you must then make every effort to comply with MTD as soon as possible going forward.

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If I am not exempt when do I have to comply with Making Tax Digital for VAT?

The new regime came into effect on 1 April 2019, however the exact date from which you must begin to keep digital records and file VAT returns using API enabled software depends on when you became VAT registered and what your VAT quarters are.

For more details see our news article Making Tax Digital for VAT – are you ready?.

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How do I join Making Tax Digital for VAT?

There is a sign-up process that you must follow to register for Making Tax Digital for VAT. The various steps that need to be followed to complete the sign-up process are set out on GOV.UK.

For more details see our news article Making Tax Digital for VAT – are you ready?.

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What are digital records?

The 'Making Tax Digital for VAT’ regime will require you to maintain business records digitally for VAT purposes and also to file your VAT returns using digital methods. This means that some kind of electronic record keeping system must be used. This could be an accounting software package, a spreadsheet-based system or maybe via an ‘app’ on a smartphone.

There is no record keeping software available from HMRC, therefore it will be necessary to purchase a commercial system you feel is suitable for your business and within your budget. The cost of the software packages varies between suppliers. Some suppliers offer free products but this may only be for a limited time or may only be for the simplest version of their product. Therefore, you must be careful when reviewing potential software products to try to ensure you get the most suitable product for your circumstances.

HMRC have published guidance relating to finding relevant software. This includes a tool which may help you to select a product which is most suitable for your business. The current version of the tool is rather basic but it is continuing to be developed and changes are made to it periodically by HMRC to improve its functionality.

Your digital record keeping system must also enable you to file the VAT return digitally with HMRC directly from within the software.

For more details see our news article Making Tax Digital for VAT – are you ready?.

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How do I file my VAT return once I am in Making Tax Digital for VAT?

Once you are within the Making Tax Digital for VAT regime, you must file your VAT return using your software. You must not use the HMRC VAT online service to file VAT returns once you have signed up to the Making Tax Digital for VAT programme as they will not be regarded as valid returns and you may be charged a late filing penalty.

For more details see our news article Making Tax Digital for VAT – are you ready?.

Remember that the Making Tax Digital regime is an administrative system and so the figures required for the VAT return itself is not changing and so your VAT payments/refunds will continue to be worked out in the same way as under the previous filing system.

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What will happen if I do not register for Making Tax Digital for VAT when I should or cannot file my VAT return once I have registered?

HMRC have stated that if you have tried hard to comply with the new digital record keeping and digital filing requirements and can show you have made a genuine effort to do so, but have slipped up somewhere along the way then it is unlikely you will be penalised, at least in the first 12 months of the new regime. However, if you have made little or no effort to meet the new requirements then it is more likely that you may be charged penalties in due course.

However, this does NOT apply to late payment of VAT, therefore even if you are struggling to file your VAT return under the new programme, you should still ensure you pay any VAT due at the correct time to avoid possible penalties. You should contact the Business Payment Support Service as soon as possible if you will not be able to pay your VAT on time. If you are struggling to file the VAT return itself then you will probably need to seek help from the software provider in the first instance, as the problem is most likely to be to do with using the software itself rather than an issue which HMRC can help you with.  

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If I am exempt, how do I file my VAT returns?

If you have been able to file your VAT returns online in the past using HMRC’s online portal then you should continue to file in this way for future returns. However, if you cannot manage online returns at all then you will need to contact HMRC to discuss with them how they wish you to file returns in future. It is likely they will ask you to either call the helpline so that the figures can be taken down by HMRC and then entered onto the VAT system, or possibly allow you to complete paper returns. HMRC can offer specialist support with VAT to vulnerable taxpayers though its ‘Needs Enhanced Support’ (NES) service.

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Where can I find more information on VAT?

GOV.UK has information on VAT generally including: deadlines for filing and payment, partnerships, reclaiming VAT, VAT visits and inspections, and using VAT online services.

HMRC’s collection of guidance on Making Tax Digital for VAT is also available on GOV.UK.

VAT notice 700/22 has detailed information on the Making Tax Digital programme

HMRC have developed a series of webinars and videos to help you understand Making Tax Digital for VAT.

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