MTD For VAT: Lessons and Reminders for ‘Second Stage’ Filers

Jeff Gambold
October 3, 2019

7 August 2019 was a landmark in one of the most significant changes ever to occur in UK business-to-government VAT reporting.  The requirement to file VAT returns via HMRC’s new digital tax system Making Tax Digital for VAT (MTD) affected 1.2 million VAT registered taxpayers.  The vast majority file quarterly returns and were therefore expected to make their first MTD filings on or before 7 August, 7 September or 7 October, with most quarterly filers operating to quarters aligning to the calendar year (although a smaller number of monthly VAT filers  will already have done so by 7 June).  On their website, HMRC made the enterprising statement “HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world and MTD is making fundamental changes to the way the tax system works – transforming tax administration so that it is more effective; more efficient; easier for taxpayers to get their tax right”.

So, how did it all go?

Well, as perhaps expected, successful take-up from businesses to the new scheme was not as comprehensive as hoped by HMRC.  Perhaps foreseeing this, early in May they revised their VAT Notice about MTD to facilitate the recording of transactions relating to petty cash, suppliers and intermediaries, and charitable events.  They believed they had made it clear in news releases in June and July that applications to use the MTD interface would need to be made more than a week in advance in order to be successfully processed. 

Notwithstanding this, and despite news that more than ten thousand were registering every single day, some 120,000 taxpayers – in essence, around one in four believed to have had a 7 August filing deadline – failed to get their MTD connection up and running for August, thus missing the cut-off.  In many cases, this was due to late planning by the applicants, but HMRC also suffered its own technology glitches, such as handling automatic VAT payments via direct debit.  Realising there was a reputational issue at stake, and also heeding the impending possibility of a ‘No-Deal’ Brexit, HMRC confirmed they wouldn’t impose penalties where VAT returns were filed by the due date using the superseded method of the secure access web portal via the Government Gateway.

Months before this, HMRC had already backtracked on the timing of their requirement that businesses must have digital links in place between software programs (e.g. between an ERP and MTD bridging software, but also between different software programs handling information that ultimately ends up in the VAT returns) in order to provide a fully automated audit trail free of human intervention.  Instead, they announced a ‘soft landing’ period of up to a year for these links to be put in place, based on when the business was required to implement MTD, with no filing or record-keeping penalties being applied to those found not to have met these conditions in the interim.  To recap, these are:

  1. First Stage filers: those required to file using MTD for accounting periods starting on or after 1 April 2019: digital links must be in place by the commencement of your first VAT return period that falls on or after 1 April 2020 onwards;
  2. Second Stage filers: those required to file using MTD for accounting periods starting VAT periods starting on or after 1 October 2019: digital links must be in place by the commencement of your first VAT return period that falls on or after 1 October 2020.

Second Stage filers are often referred to as ‘complex’ businesses, as HMRC have determined certain features to their operations pose greater intricacy in VAT reporting than others: trusts; ‘not for profit’ organisations; local authorities; public corporations; non-established businesses; users of HMRC’s Annual Accounting Scheme; any VAT registrations mandated to make monthly Payments On Account to HMRC; and those registered in VAT groups.  Although a small number of the total taxpayer base (less than 1% of the total), Second Stage filers include some of the largest UK taxpayers.  Accordingly, the onboarding of this ‘second wave’ to MTD will be a true litmus test for this ambitious project.     

Take Action

Sovos provides VAT reporting technology that is fully compliant with MTD, including digital link. Discover more.

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.


Jeff Gambold

Jeff Gambold is a Senior Regulatory Specialist at Sovos, with responsibility for ensuring that the SVR product is kept updated and compliant with the latest VAT legislative changes. Prior to joining Sovos, Jeff worked in various VAT advisory and management roles within HMRC, UK Top 15 accounting practices and commercial business.
Share This Post

ShipCompliant United States
February 27, 2020
An Analyst’s Insights into 2020 Direct-to-Consumer Wine Shipping Report

Sovos ShipCompliant and Wines Vines Analytics recently released the 2020 Direct-to-Consumer Wine Shipping Report and we asked Tom Wark of Wark Communications, a company specializing in beverage industry communications, to give us some of his insights and takeaways from this year’s report. Tom has been involved in the creation of the DtC report for many […]

E-Invoicing Compliance EMEA VAT & Fiscal Reporting
February 27, 2020
Greece Publishes Accreditation Scheme for E-invoicing Service Providers

Certification of e-invoice service providers is an important first step and milestone ahead of the implementation of e-invoicing in Greece.  The Greek Government has now defined the regulatory framework for e-invoice service providers, their obligations, and a set of requirements needed to certify their invoicing software.   Key details and parameters Scope E-invoice service providers […]

Sales & Use Tax United States
February 26, 2020
It’s Time for Tax to Step Up and Be Heard

In a recent piece published by Deloitte, Upgrading to SAP S/4 HANA: The evolving role of the tax function in large multinationals, the case is made that the move to S/4 HANA is the right time and technology for tax to embrace digital transformation. We would agree. With SAP extending the support deadline of its […]

E-Invoicing Compliance EMEA Italy VAT & Fiscal Reporting
February 26, 2020
Italy’s e-invoicing reform: A new FatturaPA

Italy has been a pioneer when it comes to automating e-invoicing processes. It first introduced a B2G e-invoicing system in 2014 which has since evolved into a robust and mandatory platform for the exchange of invoices now also expanded to include B2B and B2C transactions. The Italian central e-invoicing platform SDI was considered revolutionary by […]

Asia Pacific Brazil Colombia EMEA Italy LATAM Mexico Spain Tax Compliance Tax Information Reporting United States
February 25, 2020
Prepare to Pay Taxes on Crypto Held in Foreign Accounts

The Government Accountability Office (GAO), a U.S. Congress watchdog, published a report evaluating the IRS’s approach to regulating virtual currency (crypto) and the guidance it has offered the public. The GAO’s Recommendation However, a portion of the report was directed at the IRS and the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. […]