All you need to know about Making Tax Digital for VAT - what it means, who it impacts and how businesses can manage VAT digitally.
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Making Tax Digital
Making Tax Digital for VAT
What you need to know about MTD for VAT
Who it affects
All VAT-registered businesses in the UK must follow MTD for VAT rules and manage taxes digitally, regardless of turnover.
When it’s due
Most businesses file VAT returns every quarter. MTD submissions are due one month and seven days after the end of the VAT period.
HMRC penalties
Late MTD submissions will earn penalty points with fixed financial penalties if you pass the deadline. Interest is also added to late payments.
How to comply
You need to keep digital records up to date to avoid fees. Then, you must submit VAT returns on time using MTD-recognised software.
Automatic registration
If you’re a newly VAT-registered business, you’ll be enrolled into MTD for VAT by HMRC. Existing businesses were automatically enrolled by the 2022 deadline.
Choose software
You need MTD-compatible software to stay compliant. FreeAgent accounting software is included with our business accounts - it automatically calculates your VAT figures.
Update digital records
You should update your digital records with new transactions and costs. If you connect FreeAgent with your bank account, it’ll do this for you automatically.
Submit and pay
You need to submit your MTD VAT return to HMRC every quarter through your recognised software. Just keep the HMRC receipt and pay your VAT by the deadline.
Possible exemptions
There are some scenarios where HMRC accepts that it would be difficult to comply with MTD obligations. Exemptions must be recognised by HMRC and you may qualify if:
- You can’t reasonably use computers, software or the internet due to age, disability, location or another valid reason.
- Your business is subject to an insolvency procedure.
- Your business is run entirely by members of a religious society whose beliefs are incompatible with digital record keeping.
- You have another exceptional reason, which HMRC will consider on a case-by-case basis.
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Avoiding common mistakes
Mistakes could be costly, but prevention is key. Staying compliant with MTD for VAT rules is straightforward if you know what to do. Common mistakes include:
- Missing VAT return deadlines - submission dates are one month and seven days after the end of your VAT period.
- Poor bookkeeping - incomplete or inaccurate records could lead to errors, penalties and HMRC queries.
- Using non-compatible VAT software – our accounting software must be MTD-compatible for digital returns. FreeAgent is recognised by HMRC as an MTD-compatible software.
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