Making VAT digital – top tips for businesses

Is your business registered for VAT and does it have a taxable turnover of over £85,000? If yes, from the 1 April 2019 your business must comply with new Making VAT Digital rules or face fines of up to 15% of your annual VAT bill.

As yet, HMRC hasn’t announced any further penalties for non-compliance. The main issue will be when taxpayers continue to submit their returns using the old system. Unfortunately, as the VAT return will not be properly “furnished” this may mean that the default late payment surcharge regime applies even though the taxpayer thinks they have done the right thing and paid their VAT on time.

What does it mean for businesses?

1. Electronic Filing of VAT returns

Businesses must move to a new system which allows them to report VAT return information directly to HMRC. For any return commencing on or after 1 April 2019 they can no longer submit a VAT return through their government gateway account. Instead, they must use software which is able to communicate with HMRC via an Application Programming Interface (API). If this is not in place, HMRC’s system may prevent them from submitting their VAT return in the traditional way. The penalties can be as high as 15% of VAT due.

2. Digitised Record-Keeping

VAT registered taxpayers covered by Making VAT Digital will no longer be able to maintain manual records in any part of their accounting system. For those who use software and spreadsheets, digital links must be in place by 1 April 2020 to transfer data between each function. It will no longer be acceptable to manually re-key data from one system to another.

What do we know from HMRC and software providers?

Unfortunately there isn’t as much certainty and guidance as we would like. HMRC has drafted a public notice which sets out the changes to legislation, a timetable and what will be expected. HMRC has a small pilot trial and about 60 of the main software providers are involved. Businesses should be able to elect to be included in a further trial this October.

There is some movement from software suppliers. Some have created API enabled spreadsheets that will allow a “bridge” to be made between the businesses records and HMRC VAT return system. However, this is a first fix. The largest providers have confirmed that Making VAT Digital is being treated as a priority and a patch will be available in good time.  All providers involved in the trial have performed tests and submissions. It’s understood that from July tests will be carried out on the more complicated aspects such as partial exemption and VAT group reporting.

What can you do now?

While the lack of detail can make it feel like there’s little to be done ahead of the deadline, it’s worth ticking off the following steps to get yourself in a good position for when HMRC release further clarification:

  1. Ensure you understand how MTD affects you. Make sure your team is trained so they also fully comprehend the requirements.
  2. Ensure that the software you use to produce your VAT return figures is API-enabled in time for April 2019. Your software provider will be able to update you. Alternatively, you can acquire an API enabled spreadsheet to bolt on as an interim measure. These are coming to market now and should develop and improve in the next few months.
  3. Digitise all parts of your record-keeping and ensure that the VAT return can be created from those digital records. For businesses using a basic spreadsheet approach or manual records, it’s time to look at software options.

What exemptions are available?

While exemptions  will apply to a minority of businesses, the extent of Making VAT Digital means it’s vital to evaluate whether your business falls outside the regime. Charities and academies for example may well be exempt.

The key is that exemptions apply to VAT registered businesses where the taxable turnover is £85,000 and above. Many will be registered for VAT but will be under this threshold. They should therefore be able to opt out and continue as they are now. Unfortunately, how the opt out process works is still unknown and we await further guidance from HMRC.

Contact us

If you have any concerns or need advice on how to ensure compliance with the new regime, please contact our team on 0191 285 0321 or email

This article originally appeared on the blog of MHA MacIntre Hudson.