So VAT’s how it’s done! Everything you need to know about HMRC’s new digital VAT filing process

HMRC’s new digital VAT initiative, Making Tax Digital (MTD) for VAT, started on the 1st of April but it might not be until you go to file your first VAT submission following this date that you’ll notice any difference – or perhaps even run into trouble!

To save you from any complications when you do come to file, here’s a quick refresher on what’s different about the new system, with important information about what every business owner now needs to do.

Do you need to take action?

If your business is VAT registered, with VATable sales above the VAT threshold, then you will need to take action, even if you already use digital VAT software such as FreeAgent.

Getting started

Assuming your business is already registered for VAT, here’s what you need to do to ensure you're ready to file under the new system:

If you’re not currently using MTD-compatible software to file VAT returns

  1. Sign up to HMRC’s new Making Tax Digital (MTD) system
  2. Sign up for MTD-compatible accounting software
  3. Connect your MTD-compatible software to HMRC

If you’re already using MTD-compatible software (e.g. FreeAgent) to file VAT returns

  1. Sign up to HMRC’s new Making Tax Digital (MTD) system
  2. Connect your MTD-compatible software to HMRC - just follow the steps in our guide to getting your FreeAgent account set up for Making Tax Digital for VAT.

If you’re not yet using MTD-compatible software, or you’re not sure if your current software is compatible, here’s a quick guide to finding the best MTD software for your business.

What happens next?

Once your accounting software is connected to HMRC’s MTD system, there are a few day-to-day things you need to take care of to ensure you meet the expectations of the new digital VAT initiative:

1. Keep digital records of relevant sales and purchases in your chosen MTD-compatible software

Before MTD came into effect, you could keep a note of sales affecting VAT anywhere you liked: in a spreadsheet, on a bus ticket, even scrawled on the back of your hand! One of the requirements of the new initiative is that you keep all records of relevant sales and purchases updated in your MTD-compatible software.

2. Let your software calculate the values for your VAT return automatically

Whereas in the old system you could calculate your VAT liabilities however you liked, in the new system your accounting software will do this for you.

3. Submit your completed VAT return through your MTD-compatible software

You'll now only be able to file VAT returns to HMRC with MTD-compatible software.

4. Pay your VAT bill

Yes, you do still need to pay your VAT bill on time! The penalties for missing payments are the same as those in the old system so make sure you have enough in the bank to cover any upcoming bills. FreeAgent’s unique Tax Timeline is a great tool for this, forecasting what you owe in advance so you know how much you’ll need to cover your next VAT bill. Find out more about FreeAgent’s digital VAT software.

Disclaimer: The content included in this blog post is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this blog post. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.

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