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UK | tax
Published:October 26, 2022

UK Making Tax Digital (MTD) Mandatory from 1 November 2022

Making Tax Digital (MTD) is a popular conversation topic for businesses in the UK. Why the sudden rise in urgency? From 01 November 2022, MTD will become mandatory for all VAT-registered businesses, not just a select few. Here’s what businesses need to know ahead of time.

UK Making Tax Digital (MTD) Mandatory from 1 November 2022

Mandatory MTD will come into full effect for all VAT-registered businesses on 01 November 2022, marking the end of businesses being able to use their existing Value Added Tax online account to submit VAT returns.

What does this mean for your business? Here's what you need to know about MTD for VAT to ensure you avoid incurring any unnecessary penalties. 

Making Tax Digital Overview

Ultimately, MTD is geared toward helping businesses reduce errors in their VAT return filing. The new process makes it easier for businesses to manage their VAT and ensures that everything is digitally aligned with HMRC’s processes and procedures. However, HMRC urges UK businesses to use compatible VAT software for the job to take full advantage of the new system and avoid penalties. 

Mandatory Making Tax Digital for VAT

When news of the new legislation first rolled out in April 2019, businesses below the VAT threshold (currently £85,000) were exempt from having to follow MTD for VAT. 

As confirmed by HMRC, all VAT-registered businesses must now sign up for Making Tax Digital (MTD) and use compatible software to file their VAT returns and store their entire digital audit trail. 

Penalties for MTD Non-compliance

HMRC is no longer taking a lenient approach to MTD for VAT. From 01 November, all VAT-registered businesses must store certain records digitally and file VAT returns using MTD-compatible software.

MTD-compatible software must: 

  • Keep all digital records.
  • Provide HMRC with information and VAT returns from data held within those digital records.
  • Receive information and updates directly from HMRC.

Businesses that file returns without using compatible software may be charged a penalty of up to £400 for every return they file. 

In addition to the return filing process, the compatible software must also allow businesses to store their files digitally. This is known as their ‘electronic account.’ All VAT-registered businesses must record all digital transactions in their electronic account. However, they are not expected to scan paper records (invoices or receipts). Additional electronic account requirements include specific data that your account must contain. 

Penalties charged for lack of an electronic account vary between £5 to £15 every day you do not meet this requirement. 

Businesses need to be mindful that simply using MTD-compatible accounting software is not enough to ensure compliance. Businesses must also be registered for MTD for VAT and activate the option within their accounting software to authenticate with HMRC’s computers.

UK tax authorities have issued a checklist to help you avoid penalties when complying with Making Tax Digital for VAT.

MTD Made Easy With VAT IT

Fortunately, our end-to-end VAT compliance service ensures that UK filers are MTD compliant. AT VAT IT, our experts offer a full MTD compliance review to help reduce risk and ensure your business is aware of any system gaps and recommendations on how to address those gaps. 



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