VAT and Making Tax Digital (MTD) – don’t risk a penalty

If you are registered for VAT, you must submit your VAT returns using MTD software or bridging software (unless you qualify for exemption). 

MTD obligations

All VAT-registered businesses are required to sign up for MTD. Businesses applying for VAT registration online are automatically signed up for MTD.

Businesses are required, by law, to use MTD-compatible software to keep VAT records and file VAT returns. Failure to do so can lead to a penalty of up to £400 per VAT return in addition to daily penalties of between £5 and £15 for failure to keep digital records, or failure to use ‘digital links’ to transfer or exchange data between different pieces of software.

• Read more: MTD and VAT - Making Tax Digital in 2022

Exemptions from MTD

You can apply to HMRC for exemption if it’s not reasonable or practical for you to use computers, software or the internet to follow the rules for Making Tax Digital for VAT.

HMRC considers applications for exemptions on a number of grounds, including:

• Age, health condition, disability or where you live
• Objection to using computers on religious grounds
• No access to the internet

How to avoid a penalty from HMRC

To help you avoid a penalty, HMRC have produced a fact sheet (CC/FS69) which clarifies that you must:

• File your VAT return using functional compatible software — you can find details of MTD-compatible software on the GOV.UK website. You may be able to get a discount of 50% on compatible accounting software through the UK government's Help to Grow: Digital scheme.
• Keep records digitally — a list of records which need to be kept digitally is included in the factsheet.
• Use the checking functions within your software — use of the checking functions helps to reduce the risk of errors on your VAT return. Penalties are imposed for submitting an incorrect VAT return and HMRC may view not using the checking function as ‘deliberate’ or at least ‘careless’ behaviour for penalty purposes, thus increasing the penalty charged.
• Sign up for MTD and link your software to the MTD portal — there is help and guidance on the GOV.UK website but HMRC advise you get in touch with your accountant to help guide you through the process.

Here at Shorts we are able to submit VAT returns on your behalf through our own agent MTD account. Please get in touch with our VAT Advisory Services if this is an option you would like to consider.