The Complete Guide to Making Tax Digital for VAT

Introduction

Making Tax Digital (MTD) is one of the most significant changes to UK tax reporting in recent years. Designed to modernise the tax system and reduce errors, MTD requires businesses to keep digital records and submit VAT returns using approved software. If you’re VAT-registered, complying with MTD is not optional – it’s the law.

What is Making Tax Digital (MTD)?

MTD is a government initiative by HMRC aimed at simplifying and digitalising the UK tax system. It began with VAT in April 2019 and will eventually extend to income and corporation tax. The goal is to improve efficiency, accuracy, and compliance across the board.

Who Needs to Comply with MTD for VAT?

All VAT-registered businesses with a taxable turnover above £90,000 (as of April 2024) must comply. This includes companies, sole traders, partnerships, landlords, and charities. Even businesses below the threshold that voluntarily register for VAT must follow MTD rules once enrolled.

Key Benefits of Going Digital with VAT

• Real-time insights: Stay on top of cash flow and business performance.
• Error reduction: Automation reduces mistakes from manual entry.
• Faster submissions: Send VAT returns quickly and securely.
• Improved record keeping: All data stored safely in one place.

Choosing the Right MTD-Compatible Software

HMRC requires VAT returns to be submitted using MTD-compatible software such as Xero, QuickBooks, or FreeAgent. These platforms allow you to connect your bank feeds, track expenses, and generate returns automatically.

How and When to Submit VAT Returns

VAT periods are usually quarterly, and returns must be submitted within one month and seven days after the end of each period. Failure to submit or pay on time may result in penalties under the new points-based system introduced in 2023.

Avoiding Penalties and Errors

Common MTD mistakes include:

• Not using compliant software
• Late filing
• Missing digital record requirements

Ensure you’re keeping accurate digital records of all sales, purchases, and VAT adjustments.

How HPL Accountancy Can Help

At HPL Accountancy, we offer:

• Setup of MTD-compatible software
• Full training and onboarding
• Quarterly VAT return preparation and filing
• Ongoing support and compliance reviews

Conclusion

Making Tax Digital doesn’t have to be stressful. With the right tools and support, your VAT processes can become smoother and more efficient. Contact HPL Accountancy today to ensure you’re MTD-compliant and confident in your VAT returns.