All VAT-registered businesses must now use MTD compatible software

All VAT-registered businesses must now use MTD compatible software

Business & Legislation

HM Revenue and Customs (HMRC) has issued a reminder that all VAT-registered businesses must use Making Tax Digital compatible software for their VAT returns from 1 November 2022, and they will no longer be able to use their existing Value Added Tax (VAT) online account to submit VAT returns.

MTD’s aim is to help businesses get their tax right first time by reducing errors, making it easier for them to manage their tax affairs by going digital, and consequently helping them to grow.

By law, all VAT-registered businesses must now sign up to Making Tax Digital (MTD) and use compatible software to keep their VAT records and file their returns, unless HMRC has agreed they are exempt from MTD. Businesses who file their VAT returns on a quarterly and monthly basis will no longer be able to submit them using their existing VAT online account.

If businesses do not file their VAT returns through MTD-compatible software, they may have to pay a penalty. Even if a business currently keeps digital records, they must check their software is MTD compatible and sign up for MTD before filing their next return.

Signing up to MTD for VAT

If your business hasn’t already signed up to MTD or started using compatible software, you must follow these steps now:

  1. choose MTD-compatible software – a list of software, including free and low-cost options, can be found on GOV.UK
  2. check the permissions in the software – once a business has allowed it to work with MTD, they can file VAT returns easily. Go to GOV.UK to learn how to do this and search ‘manage permissions for tax software’
  3. keep digital records for current and future VAT returns – a business can find out what records need to be kept on GOV.UK
  4. sign up for MTD and file future VAT returns using MTD-compatible software – to find out how to do this, go to GOV.UK and search ‘record VAT’

If your business is already exempt from filing VAT returns online or if it is subject to an insolvency procedure, it will automatically be exempt.

A business can check if they can apply for an exemption from MTD on GOV‌‌‌.UK if it is not reasonable or practical for them to use computers, software or the internet. HMRC will consider each application on a case-by-case basis.

If a business is new and is not yet registered for VAT, they will automatically be signed up for MTD while registering for VAT through HMRC’s new VAT Registration Service (VRS). Registering via this online service not only means a faster VAT registration and improved security, but also helps new businesses to be fully compliant with MTD requirements from Day 1 – although they will still need to get the right software to submit their VAT returns.

Further Support

A range of accessible help is available online through GOV.UK, webinars and videos as well as through HMRC’s Extra Support Service. HMRC’s live webinars also offer support on filing digitally and explain how it can help businesses.


Further information

Case studies of businesses already benefitting from MTD for VAT can be found on GOV.UK.

Independent research published in February 2022 has shown that using MTD helps businesses reduce errors and is making it faster for businesses to prepare and submit returns. It also found that businesses using fully compatible software were reaping the rewards of MTD through saving time on their tax affairs and improving their financial confidence, by going digital.

HMRC published a report, Evaluating additional tax revenue from Making Tax Digital for VAT, in March 2022 that represents the strongest evidence yet that MTD for VAT is succeeding in helping to ensure the right amount of tax is collected from businesses by reducing opportunities for error or miscalculation.

Businesses can choose to register themselves for MTD or can ask their agent to do this for them.

Businesses, or an agent on their behalf, must sign up to MTD for VAT via GOV.UK to fully join MTD. They must have MTD-compatible software before signing up.

Businesses should ensure that they sign up to MTD at least 5 days after their last non-MTD VAT return deadline date, and no less than 7 days before their first MTD VAT return deadline date to avoid paying for their VAT twice.

Businesses must keep digital records through MTD. This can be done via software. Where a business chooses to use bridging software (a type of recognised MTD-compatible software which extracts information from a business’s spreadsheet or legacy software and then submits it to HMRC in a way which is compliant with MTD requirements) digital links must be in place to ensure that records are kept digitally as information is transferred between different platforms.

Since April 2022, all businesses should have been keeping digital records from the start of their first MTD accounting period (which will vary for businesses). Further information on when to signup can be found on GOV.UK.