With little time left to prepare for Making Tax Digital (MTD) for VAT, it is important that businesses across the country quickly get up to speed with the new way of recording and submitting their VAT returns.

If you’ve not yet done so, then you’re not alone. A survey by the Institute of Chartered Accountants (ICAEW) at the end of September found that around 20% of businesses with taxable turnover above the VAT threshold (£85,000), admitted they had made no preparations at all.


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Q. What is MTD and how will it affect me?

A. The government first announced its plans for MTD in the 2015 Budget. Heralded as the biggest shake-up in the UK tax system since the introduction of PAYE (pay-as-you-earn) in 1944, MTD was originally intended to fully digitise both personal and business taxation.

The snap general election and the additional workload caused by Brexit has delayed some of the government’s plans and MTD will not apply to other taxes until 2020 at the earliest. However, MTD for VAT is still moving ahead as planned and the new way of keeping digital VAT records and submitting them to HMRC will change in April 2019.

Q. What does HMRC mean by ‘digital’?

A. For the purposes of MTD for VAT you will be required to use a HMRC compliant ‘designated software package’ for recording and submitting your VAT returns.

Q. Who will be affected?

A. VAT registered businesses with a turnover above the VAT threshold– will need to keep digital records and submit VAT returns using HMRC compliant software. This will apply to your first VAT period with a start date after 1 April 2019, while those below the threshold will be able to join the new regime on a voluntary basis.


See also: Making tax digital overview


Q. Are there any exemptions?

A. Exemptions will be offered to businesses on the grounds of religion, insolvency, or because it is not reasonably practicable to use digital tools. HMRC has announced that the most complex businesses will have until October 2019 before they need to comply. However, for the majority of businesses who currently file VAT returns, the new rules will apply from April 2019.

Q. What happens if I don’t file my VAT returns digitally From April 2019?

A. HMRC has confirmed that there will be two separate penalty systems for late filing and late payment under MTD for VAT. Late filing will attract penalty points, which will accrue and after four late submissions, a penalty will be charged for each late submission. Meanwhile, late payments will attract penalties after 15 days, before doubling after 30 days, with daily penalties charged thereafter. A ‘soft landing’ period for late submissions will be in place in the first year, but digital record keeping will be compulsory from April 2019.

Q. How can I ensure my business complies with MTD for VAT?

A. The transition to MTD was never going to be straightforward, but it doesn’t have to be stressful either.


See also: Cloud-based accounting for rural businesses - your questions answered


As one of the primary partners in the region for the UK’s leading software provider, Xero, not only can we help you with the transition to digital accounting, but we can provide unique insights and tools that will add significant value to your business by enhancing your decision-making ability. Using Xero’s cloud-based accounting systems we provide solutions for all types of business with differing levels of technical confidence, from full bookkeeping support to cloud accounting software set up and training - ensuring your business is ready for MTD.

If you are still unsure of what MTD means for your businesses or you are concerned about your preparations for it then now is the time to act and seek professional help.

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