Making Tax Digital (MTD) for VAT Requires Taxpayers to Maintain Records and Submit VAT Returns Digitally Via an API

Making Tax Digital

The UK introduced MTD in April 2019 to create a modern, streamlined digital tax system. The aim was to make it easier for businesses to file their VAT returns, get their tax right, and keep on top of their affairs. MTD also eases 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.  

MTD was initially mandatory for businesses registered in the UK with gross sales revenue above the VAT registration threshold of £85,000. From 1 April 2022, the MTD platform will be extended to cover all UK VAT registered businesses regardless of turnover and therefore impacting smaller businesses.

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Mandate quick facts

  • MTD requires every VAT registered business to record and submit VAT returns electronically using “functional compatible software”.

  • Companies must use software to keep digital records of specified VAT-related documents.

  • Stored records must include designatory data and summary VAT data for the period.

  • Use of multiple pieces of software is allowed.

  • The format of the VAT return 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 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 for VAT introduced to UK VAT registered businesses exceeding annual gross sales of £85,000.
  • 1 October 2019: MTD applies for businesses eligible for deferral.
  • 1 April 2021: The “soft landing” for digital links ended. 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.
  • 1 April 2022: Mandate expanded to include all businesses, regardless of size, that are registered for UK VAT.

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.