From 1st April 2022, over one million UK VAT registered businesses will face new Making Tax Digital obligations. In this blog, we summarise which UK VAT registered businesses will face the new obligations and what these obligations are.

Which businesses are required to follow the MTD rules?

In July 2020, HMRC announced that all VAT-registered businesses must file digitally through Making Tax Digital from April 2022, regardless of turnover. This means that the businesses below the £85,000 threshold, which were previously exempt, need to start following the Making Tax Digital rules if they haven’t already.

What are the Making Tax Digital rules?

1. Digital records

Under the Making Tax Digital (MTD) rules, all UK VAT-registered businesses must keep and maintain relevant VAT records digitally within “a compatible software package that allows you to keep digital records and submit VAT Returns” or “bridging software to connect non-compatible software (like spreadsheets) to HMRC systems”.

This digital record-keeping requirement is mandated on all VAT reporting periods beginning on or after 1st of April 2021, following the ending of the two-year ‘soft-landing’ phase of MTD. The requirements apply to the first complete VAT return from or after this date.

Records included under this include sales and purchase invoices with VAT. Accounting records not specific to VAT return requirements are not included in this.

The data that must be stored digitally is:

  • Your business name, address and VAT registration number
  • Any VAT accounting schemes you use
  • The VAT on goods and services you supply, for example everything you sell, lease, transfer or hire out (supplies made)
  • The VAT on goods and services you receive, for example everything you buy, lease, rent or hire (supplies received)
  • Any adjustments you make to a return
  • The ‘time of supply’ and ‘value of supply’ (value excluding VAT) for everything you buy and sell
  • The rate of VAT charged on goods and services you supply
  • Reverse-charge transactions – where you record the VAT on both the sale price and the purchase price of goods and services you buy
  • Your total daily gross takings if you use a retail scheme
  • Items you can reclaim VAT on if you use the Flat Rate Scheme
  • Your total sales, and the VAT on those sales, if you trade in gold and use the Gold Accounting Scheme.

2. Digital Links

If a business uses more than one software package to keep records and submit returns, these packages need to be linked digitally. Some of the ways that these can be linked include:

  • using formulas to link cells in spreadsheets
  • emailing records
  • putting records on a portable device to give to your agent
  • importing and exporting XML and CSV files
  • downloading and uploading files.

Digital links do not include:

  • ‘Cut and paste’ manual process to move data; and
  • Any manual adjustments and consolidations of group returns in spreadsheets.

There are some exceptions in the uninterrupted digital journey. HMRC has granted an exemption on manual calculations on special VAT schemes including: the capital goods scheme, flat rate, Daily Gross Takings, or partial exemptions.

The digital links between the software packages used need to be in place before the business’s first VAT period after the 1st of April 2022.

For more information

Click here for the Government’s support and guidance for Making Tax Digital for VAT.

The latest cumulative update for all supported NAV Versions (2015/2016/2017/2018) and Business Central includes Making Tax Digital functionality/extensions.  If you haven’t had them applied yet, TVision is still able to apply the MTD functionality/extensions to supported versions. For non-supported versions (2013 R2 and previous), we have created a Making Tax Digital software add-on. For more information, contact TVision on 01483 751888 or click here for our contact form.

This blog is accurate as at 24 February 2022.