Sign Up for Making Tax Digital for VAT: A Complete Guide
If you have a business in the United Kingdom, you may have heard that you need to sign up for Making Tax Digital for VAT. But what is Making Tax Digital (MTD) exactly? And how does it impact your business accounting for VAT returns?
Introduced by the UK government in 2019, the Making Tax Digital program requires UK businesses to keep digital records of all value-added tax (VAT) transactions. They must then also regularly submit returns online using compatible software to His Majesty’s Revenue and Customs (HMRC). Continue reading for instructions on how to sign up for MTD for your business.
- As of April 2022, all VAT-registered businesses must be signed up for MTD for VAT.
- Making Tax Digital requires businesses to keep VAT online account records and submit VAT returns using compatible, approved software.
- Manual submission of a VAT return is no longer permissible, with rare exceptions.
- If you are registering your business for VAT for the first time, you sign up for Making Tax Digital at the same time.
Here’s what we’ll cover:
Overview of Making Tax Digital For Vat
How Do I Know If I Need To Sign Up For MTD?
What You Need To Sign Up To MTD
Overview of Making Tax Digital For VAT
The Making Tax Digital program by HMRC aims to modernise the tax system, streamlining and expediting the reporting process for businesses and individuals. This will include MTD for Income Tax and MTD for Corporation Tax in the coming years. MTD for VAT has already begun, and MTD registration is mandatory.
The UK government requires businesses to keep digital records and use compatible Making Tax Digital software to create and submit their VAT returns.
Digital records required for MTD for VAT include:
- Business name
- Business address
- Business VAT number
- VAT accounting scheme details
- VAT transaction details, including time and date, net value excluding VAT, and VAT rate
If you keep physical or printed copies of invoices and receipts, you must transfer the relevant information to your MTD for VAT accounting software before submitting your VAT return.
How Do I Know If I Need To Sign Up For MTD?
When the UK government introduced the program in 2019, it only required registered businesses exceeding the VAT threshold of £85,000 to register for MTD and submit VAT returns through the system. These included partnerships, limited companies, non-UK businesses registered for UK VAT, charities, and other organisations.
As of April 1, 2022, the legal requirement for businesses having to submit Making Tax Digital for VAT returns applies to every VAT-registered business, regardless of their taxable turnover. If your business collects VAT, you need to register for MTD for VAT.
Some exemptions may apply. You, or your accountant, will need to file a formal request with HMRC. Possible considerations include disability, remote location, inability to use the internet, or religious grounds. Failure to comply with MTD for VAT requirements can result in fines and penalties levied by HMRC.
What You Need To Sign Up To MTD
Before you sign up for Making Tax Digital, you’ll need to complete at least two other preliminary steps if you haven’t already satisfied them. First, you need to register to collect value-added tax (VAT). Second, you need to create a Government Gateway user ID for business. If your business is already VAT-registered, these two pieces should already be in place.
The business details you need on hand as you sign up to MTD for VAT include the following:
- Your VAT registration number
- The date you registered for VAT
- The Government Gateway account ID and password for your business
- Your business entity type
- The email address you use for your business
- Your latest VAT return
- Your National Insurance number if you are a sole trader
- Your company registration number if it is a limited company or registered society
- Your Unique Taxpayer Reference (UTR) if it is a limited company or registered society
- Your postcode if it’s a limited partnership registered for Self Assessment or a general partnership registered for Self Assessment
- Which MTD VAT-compatible software you are using for your business
Remember that using fully compatible software is a requirement under the MTD for VAT program, meaning you need to start keeping digital VAT records of all transactions if you haven’t already. FreshBooks’ MTD VAT software allows you to keep digital business records and submit your VAT returns automatically to HMRC. Manage all your bookkeeping and accounting needs in one place with FreshBooks.
As you prepare to participate in the MTD for VAT program, you will continue to file VAT returns online with the same frequency as before: monthly, quarterly or annually, depending on your business. Similarly, due dates for VAT payments remain largely unchanged. The key difference is that you must keep digital VAT records and submit your VAT return to HMRC using an approved digital software API.
How To Sign Up For MTD
If you register your business for a VAT number for the first time, MTD registration also happens during that process. It’s automatic.
The deadline to register for MTD for VAT for existing businesses was April 2022. All businesses registered for VAT should already be signed up for Making Tax Digital for VAT now. Unless the remaining companies are exempt or have applied for exemption, HMRC will automatically sign them up for the program.
To check your status, log into the Government Gateway account for business and review the VAT return information. If you haven’t already, you may need to activate the MTD functionality in your accounting software. This will involve entering your MTD login details. You must also inform HMRC what digital software you use for MTD for VAT purposes.
Making Tax Digital by HMRC aims to upgrade and rejuvenate the United Kingdom’s tax system so that the reporting process for businesses and individuals is faster and easier. If you are a VAT-registered business in the United Kingdom, you must sign up for Making Tax Digital or MTD. MTD will happen simultaneously if you sign up for VAT for the first time.
As of April 2022, all VAT-registered businesses must use MTD for their VAT returns, regardless of their threshold. Before signing up for MTD, you must register to collect value-added tax (VAT) and create a Government Gateway user ID for business. HMRC has a list of approved software for you to use for MTD, including FreshBooks’ comprehensive, easy-to-use HMRC and MTD-approved software. Click here to try it today.
FAQs On How To Sign Up For MTD
Do I Need An Agent For MTD?
No. UK businesses can choose to register for MTD themselves and submit their VAT returns using compatible software. A small business or sole trader may enlist an accountant or agent to assist or guide them through the accounting process, but this is not a requirement.
Do I Need Special Software To Sign Up For Making Tax Digital?
Yes. HMRC has a list of approved software compatible with Making Tax Digital for value-added tax. FreshBooks is fully compliant with MTD for VAT, making it easy to keep digital records and submit your tax return online.
How Do I Know If I’m Registered For MTD?
Every VAT-registered business must legally sign up and use the MTD program. If you need clarification, log in with your Government Gateway account to check your current status.
What Happens If You Don’t Sign Up For Making Tax Digital?
Depending on the circumstances, the specific penalties a business may receive from HMRC will vary. These may include fines of up to £400 for every VAT return not submitted through compatible software, up to £15 per day for not keeping business records in the digital software, and up to 100% of VAT owing for failing to use the checking functions in the software. Late filing and late payment penalties may also apply.
How Does Making Tax Digital Affect Businesses That Are Exempt From VAT?
For now, businesses exempt from VAT may not need to sign up for Making Tax Digital for VAT, but they may still need to keep digital records of transactions and report to HMRC. As HMRC expands the MTD program to include other taxes, like income and corporation tax, VAT-exempt businesses may need to use MTD-compatible software. More information may appear in your Government Gateway account, as applicable.
Balil Warraich, ACCA
About the author
Balil Warraich is an ACCA and CPA with over ten years of experience in the financial space. He specializes in accounting, assurance, and taxation services. Balil currently resides in British Columbia, Canada, where you’ll find him at https://www.notioncpa.com/