Making Tax Digital / MTD – What It Means For Businesses

All businesses with annual turnover above the VAT-registration threshold (currently £85,000) will be required to submit their VAT returns with Making Tax Digital / MTD-compliant software for VAT periods starting on or after 1st April 2019:

  • Monthly returns for the period April 2019 must be submitted by 7th June 2019;
  • Quarterly returns for the period April-June 2019 must be submitted by 7th August 2019;
  • For annual returns, check your Government Gateway online account for due dates.

If such businesses try to use the Government Gateway VAT portal, they will receive a warning and the submission will not be accepted.  At the time of writing, HMRC has yet to advise the specific nature of the warning and non-acceptance, or of the consequences.

The VAT portal will remain open for businesses with annual turnover below the VAT-registration threshold to submit their VAT returns, until such time as they will also be required to use MTD-compliant software – at the time of writing this is expected to be some time after April 2020.

While submission of VAT returns may not actually be due until 7th August 2019, businesses are mandatorily bound by legislation to maintain digital records from 1st April 2019.  If you have not yet started to prepare for this, YOU MUST START NOW.  It will probably take longer than you think and there will probably be unforeseen issues to address.

This process is what HMRC are referring to as ‘Signing up to MTD’. Businesses will need a BTA – Business Tax account – most will have one already – if unsure, log in to your government gateway account to check. If you don’t have a government gateway account you will need to register and then check for or enquire about a BTA – also see note below about BTAs through Accountants.

Businesses that already use competent accounting software to manage their record keeping should find the transition relatively easy.  They should check with their software provider to ensure that the software they use is or will be MTD-compliant in good time and confirm what measures must be taken, e.g. software updates, training, costs etc.  VAT returns will be submitted directly from the accounting software rather than by logging in to the Government Gateway VAT portal.  The VAT return figures will be calculated from the detailed transactions in the accounting software, which should provide the opportunity to check and adjust the figures prior to submission.  When the submitted VAT return details are accepted by HMRC, a notification message will be returned to the software – in the same way as RTI does for payroll.

It should be possible to use spreadsheets with an integrated API to submit your VAT return.  However, we recommend use of competent accounting software, e.g. Prelude.

In order to communicate with HMRC, the accounting software or spreadsheet will require the following information:

  • Business name and address – as per the Government Gateway account
  • VAT registration number
  • Government Gateway username and password – as in RTI

If your Accountant usually submits your VAT return, they should be able to continue to do so.  You should contact them to understand their MTD plans and what they need from you.  We have prepared a separate help article for accountants to explain what they must do to prepare for MTD.

If you are going to engage a new Accountant to prepare your VAT returns, you may need to create a Business Tax account (BTA) with HMRC on their website.  Ask your new Accountant to assist you, if necessary.  Each business will have a BTA that will send them notifications and where you can view your VAT returns.  If you pay your VAT liability by direct debit, you will need to supply a contact email address – log in to your Government Gateway account at least three weeks before your first submission to ensure it’s all set up in good time.

If you use Diamond or Prelude to manage part but not all of your record keeping, and process your VAT returns externally, please contact us to discuss your best course of action.

Finally, a number of special VAT schemes have largely fallen outside regular use in accounting software.  Such schemes include: Flat Rate Scheme, Annual Scheme, Margin Scheme and Margin Scheme for second-hand vehicles.  For MTD, these must be accommodated in the submitted VAT returns.  If your business uses a VAT scheme other than the standard invoice or cash accounting schemes, please contact us and we can advise you separately.