The UK has Introduced Making Tax Digital for VAT (MTD), Requiring Taxpayers to Maintain Records, and Submit VAT Returns Digitally Via an API.

Making Tax Digital

The UK has introduced MTD to create a modern, streamlined digital tax system making it easier for businesses to file their VAT returns, get their tax right, and keep on top of their affairs. It also reduces the administrative burden on the UK tax authority HMRC, as it aims to become one of the most digitally advanced tax administrations in the world.  

Currently, MTD is mandatory for businesses registered in the UK with gross sales revenue exceeding £85,000. HMRC has extended the MTD platform to cover all UK VAT registered businesses from 1 April 2022.

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Mandate quick facts

  • MTD requires every VAT registered business to record and submit VAT returns electronically
  • The format is a 9-box summary that needs to be filed via the HMRC’s JSON API platform, and which must be digitally linked between the customer’s source data and the digital return being submitted. Businesses will receive as well as send information to HMRC via API
  • Each business in scope must set up a new digital tax account and should follow a new authentication process
  • Digital records can be submitted in a range of digital formats, including XML, CSV, and Excel, provided they are API enabled

Mandate rollout dates

  • 1 April 2019: MTD applies to any businesses that HMRC has not advised in writing are eligible for deferral, and who have not successfully applied for an exemption.  VAT return periods starting on or after 1 April 2019 must be submitted via MTD

  • 1 October 2019: MTD applies for businesses eligible for deferral.  VAT return periods starting on or after 1 October 2019 must be submitted via MTD

  • 1 April 2021: The “soft landing” for digital links ends. Starting with that tax period, all MTD users must meet digital link requirements. Deferrals may be considered by HMRC for taxpayers with complex legacy systems.

Penalties

  • A default surcharge of up to 15% of any VAT due that is paid late 

  • Up to 100% of any VAT understated or over-claimed if a VAT return contains a careless or deliberate inaccuracy

  • Up to 30% of an understated assessment of VAT due if HMRC isn’t informed within 30 days that it’s incorrect

  • £400 for submitting a paper VAT return without an exemption  

How Sovos Helps Companies Comply with MTD

Keeping up with VAT compliance obligations becomes more difficult in practice as the UK continues to take steps to reduce its VAT Gap and modernize the system.

Our experts continually monitor, interpret and codify changes into our software, reducing the compliance burden on your tax and IT teams.

Learn how Sovos’ solution for VAT compliance challenges can help you stay compliant.