Making Tax Digital for VAT

Making Tax Digital (MTD) for VAT is now a legal requirement for all VAT-registered businesses unless they're specifically exempt. This means you must use compatible software to keep digital VAT records and submit your VAT returns electronically. If you're genuinely unable to meet these requirements, you may be able to apply for an exemption.

Who needs to use Making Tax Digital for VAT

All VAT-registered businesses should now be signed up for Making Tax Digital for VAT. This applies regardless of your turnover or business size.

You must use compatible software to:

• Keep your VAT records digitally
• Submit your VAT returns to HMRC

This requirement replaced the old methods of submitting VAT returns, such as paper forms or basic online submissions that didn't involve digital record-keeping.

Finding compatible software

To comply with Making Tax Digital, you need one of the following:

Compatible software package – Software that allows you to both keep digital VAT records and submit VAT returns directly to HMRC.

Bridging software – If you want to continue using non-compatible software (such as spreadsheets), you can use bridging software to connect it to HMRC's systems.

HMRC provides a search service to help you find compatible record-keeping software and bridging software. If you work with an agent or accountant, speak to them first about what software you need – they may already have systems in place that work with their own processes.

How the software works

Once you have compatible software, it will ask you to grant authority for it to access your VAT data from HMRC on your behalf. This authority lasts for 18 months, though you can check or withdraw these permissions at any time through your HMRC account.

If you're unsure how to enter information into your software or experience technical issues with it, you should contact your software provider directly. HMRC can only provide advice on the legal requirements of Making Tax Digital, not on how to use specific software packages.

Agents signing up clients

If you're an accountant or agent signing up a client's business for Making Tax Digital, you need to create an agent services account. This is different from your existing HMRC online services for agents account.

Automatic exemptions

You don't need to apply for an exemption if you fall into either of these categories:

Insolvency – You or your business are subject to an insolvency procedure.

Deregistration – You've cancelled your VAT registration but still need to send your final return.

If either situation applies to you, you're automatically exempt and can submit your VAT returns using the alternative methods available for exempt businesses.

Applying for an exemption

You can apply for an exemption if it's not reasonable or practical for you to use computers, software or the internet to follow the Making Tax Digital rules.

Valid reasons include:

• Your age, health condition, disability or remote location
• Religious objections to using computers
• Lack of internet access
• Other reasons that make it genuinely impractical to comply

HMRC will consider applications based on other reasons not listed above, as long as you can demonstrate why compliance isn't reasonable or practical for your circumstances.

How to apply for an exemption

You must call or write to HMRC to apply. You'll need to provide:

• Your VAT registration number
• Your business name and address
• Details of how you currently send your VAT return
• The reason you believe you should be exempt from Making Tax Digital
• Authorisation from the business (if you're applying on behalf of someone else)

Continue sending your VAT returns using your current method until you receive HMRC's decision in writing. If your exemption is approved, the letter will explain how you should submit your VAT returns going forward.

Getting help

HMRC provides online tools and guidance to help with various VAT matters, including:

• Appointing someone to deal with HMRC on your behalf
• VAT repayments and refunds
• Changing your VAT business details
• Making VAT payments
• Understanding late payment penalties and surcharges
• The VAT Flat Rate Scheme
• VAT registration

These tools signpost you to relevant guidance and videos. For more detailed information beyond Making Tax Digital requirements, you can access HMRC's VAT detailed information guidance collection.

Sources

• Apply for an exemption from Making Tax Digital for VAT
• Find software that's compatible with Making Tax Digital for VAT
• Get help with using VAT online services

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.