MTD for VAT: An Overview – Part 1

What is Making Tax Digital (MTD)?

Individuals and businesses can easily file a tax return with Making Tax Digital (MTD), UK Government’s initiative, to save time and hassle by having a comprehensive digital tax administration service online.

When do you have to file?

HM Revenue and Customs (HMRC), UK Government’s tax collection department, has taken a big step forward with the introduction of Making Tax Digital for VAT. If your business taxable turnover exceeds the VAT threshold, you have to file digital copies of your tax records using Making Tax Digital (MTD) service and submit your VAT returns commencing 1 April 2019. If your business does not qualify for mandatory filing of taxable turnover which is lower than the VAT threshold you are exempted to operate MTD.

Is it mandatory for your business to make use of MTD – An entirely new requirement for VAT return

HMRC has launched a revolutionary initiative, MTD, to make tax filing a seamless and straightforward process for businesses. HMRC’s online tax submission system is faster, more convenient, and more secure. If you are a business owner registered for VAT and your VAT taxable turnover is more than VAT registration threshold of £85,000, you should make use of the online tax filing service. Make your tax preparation painless with HMRC’s free online tax filing service and keep your business taxes organized.   It is obligatory for businesses to capture your financial reports in MTD-compliant digitized tax returns format and send your VAT returns to HMRC. This means businesses must keep records in a software program or set of compatible software programs which can connect to HMRC systems via an Application Programming Interface (API).

Registration of MTD for VAT: How to register your business on HMRC website

When VAT payment is made by Direct Debit businesses cannot sign up to the MTD for VAT scheme in the seven working days leads up to, or the five working days after, sending a VAT return. Business owners are required to sign up to MTD for VAT on HMRC website using their Government Gateway user ID and password, along with their VAT registration number. Once firms have registered, you will automatically receive a confirmation email from HMRC within 72 hours after registration to validate your online tax return filing process. Businesses are not required to submit their VAT return until they receive the confirmation email.

Deadline for VAT registration threshold

For most businesses, the accounting period typically commences on or after 1 April 2019. If your taxable turnover is less than the specified VAT registration threshold at any point after 1 April 2019  it is obligatory for your business to maintain digital copies of your tax return records that are functionally compatible with MTD, and submit your VAT returns to HMRC. This provision of VAT rules is not applicable if businesses de-register for VAT or exempted from the purview of MTD for VAT.

Can I Register for VAT When My VAT Taxable Turnover is Below the Threshold

If your business has a taxable turnover less than the VAT threshold, it may be a wise choice to voluntarily do so because the return can serve as proof of submission of your VAT returns. Businesses are also allowed to sign up for MTD for Income Tax to streamline your business process. Financial software has some great tools to set and track goals and help you track and analyze your business’s financial performance.