Making Tax Digital (MTD) for VAT has been mandatory for VAT-registered businesses since April 2019, yet many still struggle with full compliance.
MTD Requirements:
Use MTD-compatible software to keep VAT records digitally. Submit VAT returns directly from the software. Maintain digital links between different software systems.
Implementation Steps:
Choose Compatible Software HMRC maintains a list of approved software providers. Popular options include Xero, QuickBooks, Sage, and FreeAgent. Consider your business size, complexity, and integration requirements.
Set Up Digital Records Import existing customer and supplier data. Configure VAT rates and codes correctly. Set up chart of accounts matching your business structure.
Create Digital Links Ensure data flows automatically between systems (e.g., e-commerce platform to accounting software). Manual entry breaks digital links and risks non-compliance.
Test Submissions Submit test VAT returns before the deadline. Verify calculations and ensure successful HMRC acceptance. Resolve any integration issues early.
Common MTD Challenges:
Bridging Software Some businesses need bridging software to connect non-compatible systems. Additional costs and complexity but necessary for compliance.
Record Preservation Digital records must be preserved for 6 years. Consider cloud storage backup and security measures. Ensure software provider offers data export capabilities.
Agent Access If using an accountant, ensure they have MTD-compatible software and appropriate agent authorisation. Some older accounting practices may need system upgrades.
Future MTD Expansions:
MTD for Corporation Tax planned for 2026-2027. Income Tax MTD may follow for businesses above profit thresholds. Early adoption provides competitive advantages and spreads implementation costs.
Benefits Beyond Compliance:
Real-time financial visibility improves decision-making. Automated processes reduce errors and save time. Better integration between business systems increases efficiency.
Professional implementation support ensures compliance while maximising system benefits for business growth.
