Mtd for vat for all | Severn Accounting

Making Tax Digital for VAT has now become mandatory for all VAT-registered businesses in the UK. If you’ve been putting off understanding what this means for your organisation, now is the time to get up to speed. We’re here to walk you through the essentials so you can meet your obligations without unnecessary stress.

What Is Making Tax Digital for VAT?

Making Tax Digital (MTD) for VAT is HMRC’s initiative to make tax administration more efficient and transparent. The scheme requires VAT-registered businesses to keep digital records and submit VAT returns using compatible software, rather than using spreadsheets or paper-based systems.

From 1 April 2022, the mandate expanded significantly. Previously, only businesses with a taxable turnover above £85,000 were required to comply. Now, all VAT-registered businesses—regardless of turnover—must follow MTD rules. This includes micro-businesses, charities, and public bodies registered for VAT.

The core requirement is straightforward: you must use HMRC-approved software to maintain your records and file your quarterly VAT returns. HMRC publishes a list of compatible products, ranging from simple spreadsheet-style tools to fully integrated accounting platforms. Most of these are affordable, and many offer free versions for smaller businesses.

Why HMRC Made This Change

The government’s rationale was to reduce errors and improve tax compliance across the board. Digital records are easier to audit, harder to lose, and allow for real-time visibility of tax positions. HMRC also benefits from quicker, more accurate submissions and fewer administrative queries.

While the transition has caused some concern in smaller businesses, the reality is that most accountancy software already meets MTD requirements. If you’re using cloud-based accounting tools—such as Xero, FreeAgent, Sage, or QuickBooks—you’re almost certainly compliant already. Your accountant can confirm this if you’re unsure.

Practical Steps to Get Compliant

If you haven’t yet migrated to MTD-compliant software, here’s what you need to do:

Choose approved software. Visit the HMRC website and browse the list of certified packages. Consider your business size, transaction volume, and integration needs. Many firms find cloud-based systems most convenient because records are always accessible and automatically backed up.

Migrate your records. If you’re switching from spreadsheets or an old system, you’ll need to transfer historical data. This can be straightforward with most modern software, but allow time to ensure data integrity. Your accountant or bookkeeper can often help with this migration.

Link your software to HMRC. MTD-compliant software connects directly to your HMRC account using secure API technology. You’ll need to authorise this link using your HMRC user ID. Once set up, it typically requires minimal ongoing intervention.

Maintain digital records going forward. Keep all invoices, receipts, and supporting documents in digital format. Photograph paper receipts if needed, but store them digitally. Ensure your records contain sufficient detail to justify your VAT return figures.

File returns on time. Your quarterly VAT return must be submitted within nine calendar days after the end of your VAT period. Most software can generate and submit returns in minutes once your records are up to date.

Common Concerns We Hear

“Will MTD cost me money?” Not necessarily. Many free or low-cost options exist. However, if your current system isn’t compliant, upgrading may involve a small investment. Weigh this against the time saved in administration and the risk of HMRC penalties for non-compliance.

“What if I’m exempt from VAT?” The mandate applies to VAT-registered businesses only. If your turnover is below the VAT threshold (currently £90,000 for most businesses in 2024–25), you’re not required to register and therefore aren’t subject to MTD for VAT. However, registration is still voluntary if you trade in certain sectors.

“What about penalties?” HMRC takes MTD compliance seriously. Failure to file using approved software can result in a £200 penalty for a first breach, rising to £500 for persistent non-compliance. There’s no excuse based on ignorance—the deadline has passed, and all registered businesses are expected to comply.

Moving Forward

Making Tax Digital for VAT isn’t a burden when you’re properly prepared. In fact, most businesses find that compliant software actually simplifies their record-keeping and makes quarter-end admin quicker and less error-prone.

If you’re still unsure whether your current systems meet HMRC’s requirements, or if you need help choosing and setting up new software, that’s exactly what we do at Severn Accounting. For tailored advice, contact Severn Accounting — we’re here to help.