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  • Writer's pictureInchmead

Making Tax Digital: Overview of MTD for VAT

Making Tax Digital (MTD) is a part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs. HMRC’s goal is to become one of the most digitally advanced tax administrations in the world. MTD changes help transform tax administration so that it is more effective and efficient.

Key Dates

· Autumn 2020. A consultation on MTD for corporation tax will begin.

· April 2021. Digital links between all parts of functional compatible software become compulsory for all businesses that need to use MTD for VAT (MTDfV)c .

· April 2022. MTDfV extended to all businesses registered for VAT, i.e. those trading below the compulsory registration threshold.

· April 2023. MTDfITSA compulsory for most unincorporated businesses and landlords.


If you are registered for VAT and your taxable turnover is above the VAT registration threshold (currently £85,000), you must keep digital business records and send your VAT returns to HMRC using MTD-compatible software.

If your taxable turnover is below the VAT registration threshold you are still required to continue to keep digital records and send HMRC your VAT returns using MTD software.

What records do you need for MTD?

Your digital record should include:

- Each supply

- Time of supply (tax point)

- Value of supply (net excluding VAT)

- Rate of VAT charged

- Information about your business, including business name, business address, VAT registration number, and VAT accounting schemes you use.

The only other big change for MTD for VAT is that from April 2022, any VAT-registered vendor must use MTD for VAT compatible software. That includes vendors who are voluntarily registered.

MTD-compatible software

Compatible software is a software product or set of software products that support the MTD obligations of keeping digital records and exchanging data digitally with HMRC through the MTD service. Digital records can be kept in a range of compatible digital formats. They do not all have to be held in the same place or on one piece of software.

HMRC will give businesses until 31 March 2020 to make sure there are digital links between software products. Before that date, cut and paste will be an acceptable way to transfer information.

Free software for businesses has been promised, but don’t expect it from HMRC. The free software will come from commercial suppliers with some limitations in its functionality encouraging users to upgrade to a paid-for version.

Find out what software is available for MTD for VAT now.

Source: HMRC


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