From 1st April 2022 all VAT registered businesses must sign up for Making Tax Digital, no matter how much they earn unless you apply for an exemption.

What is Making Tax Digital?

Making Tax Digital requires businesses to maintain digital accounting records and means that businesses will no longer be able to submit paper records as part of their VAT submissions. All VAT registered businesses must sign up to Making Tax Digital and submit VAT returns to HMRC using compatible accounting software.

What is compatible accounting software?

There are two types of software that are compatible with Making Tax Digital, the first is VAT record-keeping software which lets you update your records digitally, and works directly with HMRC systems so you can file a VAT return. The second is called bridging software which works with non-compatible software such as spreadsheets and accounting systems to let you send and receive VAT information. To find the right software for you, the government have provided a list of software approved by HMRC.

Who does Making Tax Digital apply to? And how long do I have to register?

Making Tax Digital VAT started in April 2019 for VAT registered businesses with a taxable turnover above £85,000, and from April 2022 is extended to all VAT-registered businesses.

If you pay your VAT tax return by direct debit you should avoid signing up for Making Tax Digital too close to the date your return is due, or you may be charged twice.

For businesses under the £85,000 threshold, you must follow the Making Tax Digital rules starting on or after April 2022. The deadline for sending your VAT returns will not be changed by signing up for Making Tax Digital, and you can see when your next return is due by accessing your online VAT account.

What records need to be kept digitally?

You need to keep the following records digitally:

  • your business name, address and VAT registration number
  • any VAT accounting schemes you use
  • the VAT on goods and services you supply, for example, everything you sell, lease, transfer or hire out (supplies made)
  • the VAT on goods and services you receive, for example, everything you buy, lease, rent or hire (supplies received)
  • any adjustments you make to a return
  • the ‘time of supply’ and ‘value of supply’ (value excluding VAT) for everything you buy and sell
  • the rate of VAT charged on goods and services you supply
  • reverse charge transactions - where you record the VAT on both the sale price and the purchase price of goods and services you buy
  • your total daily gross takings if you use a retail scheme
  • items you can reclaim VAT on if you use the Flat Rate Scheme
  • your total sales, and the VAT on those sales, if you trade in gold and use the Gold Accounting Scheme

You also need to keep digital copies of documents that cover multiple transactions made on behalf of your business by:

  • volunteers for charity fundraising
  • a third party business
  • employees for expenses in petty cash

What do I need to register?

To register for Making Tax Digital you need:

  • your business email address
  • a Government Gateway user ID and password - if you do not have a user ID, you can create one when you use the service
  • your VAT registration number and latest VAT return

You’ll also need:

  • your National Insurance number if you’re a sole trader
  • your company registration number and Unique Taxpayer Reference if you’re a limited company or registered society
  • your Unique Taxpayer Reference and the postcode where you’re registered for Self Assessment if you’re a general partnership
  • your Unique Taxpayer Reference, the postcode where you’re registered for Self Assessment and your company’s registration number if you’re a limited partnership