Making Tax Digital for VAT

22nd June 2018

Businesses over the VAT threshold must act for first phase of Making Tax Digital for VAT.

Making Tax Digital for VAT (MTDfV) will start for all businesses over the VAT threshold from 1stApril 2019.

However, a recent survey by UK200Group, the UK’s leading membership association of independent chartered accountancy and law firms, has shown that 65% of its members’ SME business clients do not currently use software to manage their accounts.

With such a large proportion of SMEs potentially unprepared for the looming MTD deadline, accountancy firms are keen to inform clients of software options and migration strategies.  In this article we highlight the key dates for the first phase of implementation, which incorporates all businesses over the VAT threshold .

accounting software

April 2019 is first phase of implementation for businesses over the VAT threshold

MTD, starting with VAT, will now be implemented from 1 April 2019, as summarised below in the below statement.

From 1 April 2019, businesses will be mandated to use the MTD system to meet their VAT obligations – termed Making Tax Digital for VAT (MTDfV). Only businesses with a turnover above the VAT threshold (currently £85,000) will be required to use MTDfV, however HMRC is piloting the new system from April 2018.”

How will this impact VAT returns?

Those businesses falling within the scope of MTDfV will be required to submit their VAT returns using HMRC-compatible software. Information will be extracted from the digital records in order to populate the VAT return.

There will be no changes to the current conditions of VAT returns or payment dates and businesses that choose to submit VAT returns monthly or in a non-standard fashion can continue to do so.

Is your software compliant?

From April 2019, VAT returns must be calculated and submitted to HMRC using a compatible software programme or set of compatible software programmes, which can connect to HMRC systems using API*.  Not all software companies are planning to make the current version of their accounting software compliant, meaning businesses may need to upgrade to newer versions.

*API is short for Application Programming Interface – a software intermediary that allows two applications to talk to each other e.g. your accounting software to HMRC’s systems.

A number of software companies are transitioning to a subscription costing model, which represents a move away from the previous “licence purchase” approach – this will result in a monthly cost for the life of the product, with support and updates included.

We recommend speaking to a professional or your software provider to understand if your software is compliant.  As a minimum, the software should be capable of:

  • Keeping records in a digital form as required by the regulations
  • Preserving digital records in a digital form as required by the regulations
  • Creating a VAT return from the digital records held in functional compatible software and providing HMRC with this information digitally
  • Providing HMRC with VAT data on a voluntary basis
  • Receiving information fromHMRC via the API platform in relation to a relevant entity’s compliance with obligations under the regulations
Content of Digital Records

The information that a business must keep and preserve digitally includes:

  • Business name, main business and VAT registration number – and which VAT accounting schemes the business uses
  • The VAT account that each VAT-registered business must keep, by law – the VAT account is the link – (the audit trail) between primary records and the VAT return
  • Information about supplies made and received
  • A record of Daily Gross Takings if the business is using a retail scheme

Are there any exemptions?

Businesses will be required to keep digital records in the software for up to six years.

Under Making Tax Digital for VAT, only a small handful of businesses will be exempt and you should seek professional advice to confirm if your business is included in this.

HMRC has made some allowance for adjustments for partial exemptions to be calculated separately, outside of digital records, before being transferred either digitally or manually. However, the final transfer of information to HMRC must be completed digitally in every instance.


It is anticipated that there will be a one-year “soft landing” grace period from April 2019, in which penalties for non-adherence will not apply.

How can we help?

We have created a number of guidance pieces for Accountancy Software selection and Making Tax Digital implications to help you understand the best options and strategies for you.

Of course, you can always discuss your options and how we can help with your migration by talking to our dedicated MTD team.  Allan Smith Kathryn Pearce or Gary Young, to arrange a free demonstration.  We are also approved suppliers for Quickbooks, Xero and FreeAgent.

Chartered Accountants in Sunderland, offering expertise on everything from Tax and Business Planning,
to Accounts and VAT.