What your business needs to know about Making Tax Digital for VAT

Date 31st January 2020 //
Author Sage
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Updated info for 31/01/20...The world of business taxes can be a confusing one, it's easy to make mistakes. In 2016-17 alone there was reportedly a £33bn “tax gap” due to such errors, and it's this tax gap that HM Revenue & Customs (HMRC) is hoping MTD will help alleviate in the coming years.

However, according to the British Chambers of Commerce, the lack of communication from HMRC has left almost half of SMEs wondering what exactly their business needs to know and do to be compliant with this new tax system.

When did business tax become digital?

The changes which came into place at the start of April, legally require all VAT-registered businesses with a taxable turnover above the VAT threshold to keep and preserve their VAT records digitally and use MTD-compatible software to send VAT returns to HMRC. If your business is using spreadsheets or paper-based methods to submit VAT records, then these are highly unlikely to be compliant with MTD and should be replaced with MTD-compliant software.

MTD for VAT - Timeline of changes


October 2018

Pilot programme open to sole traders and businesses that are up to date with their VAT (with some exceptions...)

Late 2019

Partnerships, companies that trade with the EU and flat rate scheme businesses can join private test

Late 2018 / early 2019

Sole traders, companies not up to date with their VAT and newly registered businesses can join the pilot MTD programme

Early 2019

Partnerships and companies that trade with the EU can now join the programme

Spring 2019

Businesses with guaranteed deferred status can now join the programme

April 2019

MTD for VAT officially launches for all eligible businesses

October 2019

Businesses that are deferred are now required to adopt MTD for VAT

What should digital business tax records include?

When making, submitting and recording digital business tax records these should include the following items:

- Time of supply

- Value of supply

- Rate of VAT charged

- Business name and address and VAT number

- Details of any VAT accounting schemes that you use


Making Tax Digital Checklist

Have a look at the awesome infographic provided by Sage as a handy guide and checklist for Making Tax Digital for VAT.  We have also included the checklist here:

Step 1 - Figure out if your business will be impacted

If you're VAT registered and already supplying your VAT returns to HMRC then you will definitely be affected by the MTD for VAT.  However, even if you're not VAT registered, there may be a time in the future after a period of business growth where your organisation hits the threshold and will be required to adopt the MTD for VAT rules.  If your business falls into this bracket, it's important that you plan for any changes that will impact you.

Step 2 - Work out which business processes need to be adapted

You need to think about the processes that this new change will impact.  Look at all the processes for generating VAT returns including raising invoices, capturing expenses and cash accounting schemes.

Step 3 - Ensure you have 'functional compatible software' for MTD for VAT

Your business accounting software needs to be able to communicate with HMRC - Some older software will almost certainly need to be updated.  If you have cloud accounting software, then this should update automatically for you.  Bridging software can help if you use spreadsheets for VAT.

Step 4 - Work out when to switch to MTD for VAT

Work out when would be the best time to switch over to MTD for VAT - This should generally be as soon as possible!  If your cloud accounting software provider has signed up to the beta programme, you can do this now!

As with any tax system, there are exemptions, different rules depending on your VAT scheme and differing start dates depending on your VAT filing period. Therefore to help businesses of all sizes adapt to MTD Sage has created a helpful Making Tax Digital checklist which covers many of the questions you may have surrounding the scheme.

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Enter a funding amount between £500 and £50,000,000.
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Here is your guide to Making Tax Digital for VAT

Brought to you by Sage

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