United Kingdom: Making Tax Digital for VAT

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Making Tax Digital explained

Making Tax Digital for VAT requires VAT registered businesses with taxable turnover above the VAT registration threshold to keep records in digital form and file their VAT Returns using software.It is increasingly common for business records and accounts to be kept digitally, in a software program on a computer or tablet, or in a smartphone application, or maintained through such a device and stored using a cloud-based application.

The difference under Making Tax Digital is that the software which businesses use must be capable of keeping and maintaining the records specified in the regulations, preparing their VAT Returns using the information maintained in those digital records and communicating with HMRC digitally through our Application Programming Interface (API) platform.

If your digital records are up to date, software will be able to collate and prepare your return for you. It will then show the return to you and ask you to declare that it is correct and confirm that you want to submit it to HMRC. Once you have submitted your return you will receive confirmation through your software that it has been received.

Check if you have to follow the Making Tax Digital rules – 1 Turnover test (exemption on the grounds of taxable turnover)

With effect from 1 April 2019, if your taxable turnover is above the VAT registration threshold (currently £85,000) you must follow the rules set out in this notice. If your taxable turnover drops below the VAT registration threshold at any point after 1 April 2019 you are still required to continue to keep digital records and send HMRC your VAT Returns using compatible software. This obligation does not apply if you either:

  • deregister from VAT
  • meet other exemption criteria 

VAT taxable turnover is the total value of everything you sell that is not exempt from VAT or outside the scope of VAT.

If your business is not established in the UK, you may still need to register for VAT in the UK and submit VAT Returns regardless of the amount of your taxable turnover. However, the Making Tax Digital rules will only apply to you if your UK taxable turnover exceeds the UK registration VAT threshold.

When the Making Tax Digital rules start

The Making Tax Digital rules apply from your first VAT period starting on or after 1 April 2019. A ‘VAT period’ is the inclusive dates covered by your VAT Return.

Exemption from Making Tax Digital

HMRC expect that most customers will be able to meet the legal obligations of Making Tax Digital, but accept that it may not be possible for a small number of customers to do so.

You will not have to follow the rules for Making Tax Digital if HMRC is satisfied that either:

  • it’s not reasonably practicable for you to use digital tools to keep your business records or submit your VAT Returns because of age, disability, remoteness of location or for any other reason
  • you or your business are subject to an insolvency procedure
  • your business is run entirely by practising members of a religious society or order whose beliefs are incompatible with using electronic communications or keeping electronic records

You do not need to sign up for Making Tax Digital or apply for an exemption if either:

  • you’re already exempt from filing VAT Returns online
  • your taxable turnover is below the VAT registration threshold


Source Credit – HMRC

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