What is Making Tax Digital for VAT?
Making Tax Digital (MTD) is HMRC's programme to move tax records and returns online. For VAT, it means two things:
- you keep your VAT records digitally, in software, and
- you send your VAT returns to HMRC from that software, instead of typing figures into the HMRC website.
The aim is fewer mistakes. When figures flow straight from your records to HMRC, there's less room for typing errors or missed invoices.
Who has to follow MTD?
Every VAT-registered business in the UK must follow MTD for VAT, whatever its turnover. This has applied to all VAT-registered businesses since April 2022. Most businesses are signed up automatically when they register for VAT.
You must register for VAT if your VAT-taxable turnover goes over £90,000 in any rolling 12-month period. You can also choose to register voluntarily below that, and if you do, MTD applies to you too.
Exemptions: HMRC can exempt a small number of businesses, for example where it isn't reasonably practical to use computers because of age, disability, remoteness or religious beliefs. You have to apply to HMRC for this.
Keeping digital records
Under MTD you need to keep these records in software:
- your business name, address and VAT number
- any VAT accounting schemes you use
- the VAT on each sale and purchase you make
- the date, value and VAT rate of each supply
- any adjustments you make to a return
If you use more than one piece of software, the data has to move between them through digital links, such as an export and import, not by copying figures by hand.
With accounting software like Munshian Ledger, your invoices, bills and bank transactions are your digital records, so you meet this rule just by doing your bookkeeping.
VAT return deadlines
Most businesses file a VAT return every three months. The deadline for both filing the return and paying the VAT is usually one calendar month and seven days after the end of the VAT period.
| VAT period ends | Return and payment due |
|---|---|
| 31 March | 7 May |
| 30 June | 7 August |
| 30 September | 7 November |
| 31 December | 7 February |
If you pay by Direct Debit, HMRC collects the payment a few working days after the deadline. Your exact periods and deadlines are shown in your HMRC account and in your MTD software.
Penalties for filing or paying late
HMRC uses a points-based system for late VAT returns. Each late return earns one point. When you reach the points threshold, you get a £200 penalty, plus another £200 for each further late return.
| How often you file | Points threshold |
|---|---|
| Every year | 2 points |
| Every quarter | 4 points |
| Every month | 5 points |
Points expire after a period of filing on time. Paying late is treated separately: penalties start if VAT is still unpaid 15 days after the due date, and HMRC also charges interest from the day after the deadline. If you can't pay in full, contact HMRC early to agree a payment plan.
How to file with MTD software
Filing with Munshian Ledger takes four steps:
- Connect to HMRC. Sign in with your HMRC details once to give the software permission to file for you.
- Pick the open period. Your VAT periods and deadlines come straight from HMRC.
- Check the nine boxes. They are worked out from your books. If you need to change a box, add a note explaining why.
- Submit. The return goes to HMRC and you keep the confirmation with your records.
Remember that submitting the return doesn't pay the VAT. Make sure you also pay HMRC by the deadline.
This guide is general information, correct as we understand it at the date shown. It isn't tax advice for your situation. For the latest rules see GOV.UK, or speak to an accountant.