What is Making Tax Digital?

If you’re a business owner or finance team member, you’re likely to have heard of Making Tax Digital (MTD) by now.

MTD is part of government plans which aim to make individuals and businesses’ tax affairs easier to manage. HMRC wants to become one of the most digitally advanced tax administrations in the world, with the focus currently on the MTD roll-out.

MTD was introduced in 2019 for all VAT-registered businesses over the VAT threshold – which currently stands at £85,000.

As of April 2022, MTD will apply to all VAT-registered businesses, including those that are voluntarily registered. As a result of this change, all VAT-registered businesses will need to store their VAT accounting records digitally with compatible software in order to submit their VAT returns directly to HMRC digitally.

How do you register for Making Tax Digital?

In order to be ready for MTD, you may need to do two things: register for VAT, and register for MTD for VAT.

Register for VAT

If you’re not already VAT-registered, now is the time to do so in order to make sure everything is in place when Making Tax Digital comes into force in April – there’s not much time left!

By registering voluntarily for VAT, you can reclaim VAT on things you purchase for your business, appear more legitimate to your customers, and your administrative requirements (compared to manual VAT processes) will be reduced.

So how do you register for VAT?

Register for VAT online by creating a Government Gateway account if you don’t already have one. Alternatively, you can ask your accountant to register on your behalf.
If you take care of the registration yourself, you’ll then be sent your VAT number – which you can start using on VAT invoices – and should account for VAT from the day HMRC registered you.
You should submit a VAT Return online when the time comes by signing up for a VAT online account through your Government Gateway account and selecting ‘VAT Submit Returns’.
Once you’ve submitted an initial VAT Return, you can sign up for MTD for VAT.

Register for Making Tax Digital for VAT

Before you register, you’ll need to make sure you have the following information to hand:

The email address you use for your business
Your business Government Gateway ID
Your VAT registration number
Your latest VAT Return
Your National Insurance number (only required if you’re a sole trader)
Your company registration number
And your Unique Taxpayer Reference (UTR) if registering a limited company.

From there, you’ll need to know what software you’ll be using for storing your VAT accounting records and make sure that you’re not signing up less than seven days before, or less than five days after your VAT Return is due.

Register for MTD for VAT and answer the required questions, which includes providing the above information for your business. You’ll then receive confirmation within three days from HMRC that you have successfully registered. Next, you need to make sure your software is MTD-activated. If you’re unsure of how to do this, speak to your software partner or vendor.

Digital exemptions

There are some circumstances in which HMRC will consider you exempt for MTD, including:

Where religious beliefs are incompatible with the requirements;
Where age, disability, or location mean it’s not practical to use digital tools;
Where there are insolvency proceedings.

If you believe your business falls under any of these categories, you’ll need to apply for exemption by contacting HMRC’s VAT helpline on 0300 200 3700.

It’s important to be aware that HMRC can come to the conclusion that your business is not applicable for exemption; in which case they may offer digital assistance to help you get up and running for MTD.

Deregistering from voluntary VAT

If your business isn’t expected to reach the VAT threshold of £85,000 for the tax year, you can cancel your VAT registration with HMRC (known as voluntary VAT registration cancellation). You can do this online or by filling in and sending off a VAT7 form to HMRC via post.

Deregistration typically takes three weeks to be confirmed; this will include confirmation of the date your VAT requirements will be cancelled. You must continue to observe VAT requirements until that date.

You will also need to submit a final VAT Return for the period up to your cancellation date, accounting for stock and assets you have at the date of cancelling if you wish to reclaim VAT on their purchase, and if the total VAT due is over £1000.

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How to register for Making Tax Digital