How to file an MTD VAT return

What is Making Tax Digital for VAT?

All VAT-registered companies with a taxable turnover exceeding the VAT registration threshold (currently, PS85,000) have been required to submit their VAT returns via an approved app. This system is known as Making Tax Digital for VAT.

More than a million UK businesses were affected by MTD for VAT. Many of these businesses were forced to modify the way they kept their VAT records and submitted their VAT returns. You will need to maintain digital VAT business records and send VAT returns via MTD-compatible software if your business needs to register for VAT. You can access this software from your smartphone via a cloud-based app.

This means that you will have already entered all of your information into the app but will be able to communicate with HMRC by pressing a button. Businesses VAT-registered had to report VAT quarterly before MTD was rolled out. The frequency of reporting has not changed. The information that you need to input has not changed. It was made mandatory (with some exceptions) that approved software be used.

Even if your turnover is below the VAT registration threshold you must still keep digital records and submit your returns to VAT using MTD-compatible software. This does not apply to you if your VAT registration has been canceled or you are exempted from MTD.

HMRC published a VAT Notice (VAT Note 700/22) that explains the rules of Making Tax Digital for VAT.

What date did the new HMRC VAT rules start?

Since 1 April 2019, VAT-registered companies have been required to use HMRC-approved software to submit vat returns maintain VAT records and to submit VAT returns.

Is Making Tax Digital for VAT applicable to me?

All VAT-registered businesses that have a taxable turnover over the VAT threshold (currently, PS85,000) are eligible for Making Tax Digital for VAT. You must use an approved app to digitally keep your VAT records and submit your VAT return.

Until October 2019, a small number of VAT-registered companies with "complex requirements", had to register until then. All VAT-registered companies are now covered.

How can I choose the best accounting software to make my taxes digital?

A wide variety of accounting software solutions are compatible with Making Tax Digital. All of these products are commercial and most work on a subscription basis.

First, ensure that your preferred software meets HMRC's definition of "functionally compatible software". Also, is it possible to connect to HMRC via the Application Programming Interface (API). Check with your software provider if your current software is MTD-compatible if you use it to maintain your business records.

On the government website, you can find a complete list of compatible software.

What should I look out for in an accounting application?

When choosing software, there are certain key functions and services you should be looking for. These are the top questions to ask when looking at accounting software.

• Is it able to accept VAT?
• Does it calculate my tax automatically?
• Is it possible to pull transaction data directly from my bank?
• Is it possible to get information from my POS?
• Is it able to update my transactions daily?
• Is it able to support payroll?
• It can handle different currencies
• Do you offer training and support?

Is it possible to continue using spreadsheets for my VAT accounts?

Under Making Tax Digital, the government says spreadsheets are allowed to be part of digital record-keeping. They must however be digitally integrated spreadsheets.

How can I prepare my VAT accounts right now?

After you have chosen your MTD software, it is time to begin entering your VAT records into the app. The following key VAT information is available:

• All sales, exclusive VAT;
• All your purchases, excluding VAT.
• The VAT rate is charged for individual sales and purchases.
• Date of all transactions
• All trade with EU countries
• Your business name and principal address.
• Your VAT registration number
• Information about any VAT accounting scheme you use.

What is the cost of MTD-compatible software?

MTD-compatible software solutions are available on a subscription basis. Prices vary, but most packages are priced between PS10 to PS30 per month depending on their functionality. There are some options for spreadsheet bridging software that is more simple, starting at PS15 per year. You can also get free software.

You may need to pay additional setup costs. For example, you might want to buy a new smartphone or laptop. Also, consider how long it takes to enter information into the new system.

How does Making Tax Digital impact my use of my accountant?

Your accountant files your VAT return on your behalf if they do so regularly. Accountants will still be allowed to submit VAT returns on behalf of clients. They will also be able to file MTD returns in the future. All they need is your authorization to act for you.

You can also input your VAT information directly into an approved app, but you should ask your accountant for approval before they submit it. An accountant can help you choose the right software if you, like many small businesses, file your VAT returns.

 What will Making Tax Digital do for my business long-term?

You're likely to breathe a sigh of relief right now if you are not VAT-registered. However, Making Tax Digital will eventually apply to all taxes, including income tax. You will eventually need an accounting app.