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Making Tax Digital for VAT (MTDfV) – A GuideWritten on April 14, 2025 by Kirk Rice LLP

HMRC’s Making Tax Digital (MTD) programme continues to transform how VAT is recorded and submitted. The latest HMRC guidance—available on the Making Tax Digital for VAT page —introduces further clarifications and refinements that all VAT-registered businesses should be aware of.

What’s New in the Latest Guidance?

Broader Registration Requirements:

Initially, only businesses with taxable turnover above £85,000 had to register for MTDfV by 1 April 2019. From 1 April 2022, all remaining VAT-registered businesses are now required to join MTD. This includes unincorporated businesses, partnerships, companies, LLPs, charities, trusts, and non-UK businesses registered for UK VAT.

Digital Record Keeping and Software Use:

While the core requirement remains the digital maintenance of accounting records, HMRC now confirms that businesses can continue to use spreadsheets—if these are either API enabled or used in combination with an MTD-compatible software product. This flexibility ensures that companies are not forced to overhaul their existing systems if they can adapt them to meet HMRC’s technical standards.

Submission Process Enhancements:

VAT returns must be submitted using software that can interact directly with HMRC’s API. The updated guidance reinforces that functional compatibility is essential. This means that all businesses, whether they handle their own submissions or work with an agent, must now use software capable of:

• Recording and preserving transactions in a digital format.
• Creating accurate VAT returns directly from these digital records.
• Communicating with HMRC’s systems to both submit returns and receive important notifications (including filing confirmations and reminder messages).

Record Keeping Details:

The HMRC guidance reiterates that while you don’t need to scan or digitise every paper document, every individual transaction must be recorded digitally. This includes:

• For supplies made: Recording the time, value, and VAT rate applied. If an invoice includes multiple supplies at different rates, the record must be split accordingly.
• For supplies received: Capturing the time, value (including non-reclaimable VAT), and the input tax to be claimed.
• VAT Account: Maintaining a digital VAT account is critical. This account provides the audit trail that links the underlying transactions to the figures reported on your VAT return.

Sector-Specific Provisions:

The updated guidance also clarifies that:

• Retail schemes can still use gross daily takings instead of individual transaction details.
• Flat rate and margin schemes have specific exemptions, with digital record requirements tailored to their unique calculations. For example, digital record keeping for supplies received is generally not required for flat rate businesses (except for capital items over £2,000).

Exemptions and Transitional Arrangements:

As before, exemptions exist for those digitally excluded—such as businesses that do not use computers for religious reasons or due to age, disability, or location. Pre-existing exemptions from online VAT filing were carried over into MTD. Businesses that were not previously exempt may find it challenging to obtain an exemption under the new rules.

What Do You Need to Do?

• Review Your Current Record-Keeping Practices:
  Ensure that every individual transaction is recorded digitally. If you are using paper-based records, consider whether a digital entry system can be implemented—even if this means updating your current spreadsheets to an API-enabled format or integrating them with compliant software.
• Evaluate Your Software Options:
  HMRC’s guidance emphasizes that there will be a range of software solutions available at different price points. It’s unlikely that a free solution will meet all the technical requirements, so it may be worth speaking to your accountant or a software provider about the best options for your business.
• Stay Informed on Updates:
  HMRC continues to update its guidance and the technical standards for MTD. Regularly checking the HMRC Making Tax Digital for VAT page will ensure you remain compliant with the latest rules.

How Can We Help?

Our team is here to support your transition to a fully digital VAT process. We offer:

• Advice on maintaining digital records and selecting the right bookkeeping software.
• Training sessions to help you or your team become proficient with the new system.
• Assistance with the VAT return submission process, ensuring that your data is uploaded correctly and in compliance with HMRC’s requirements.

For any questions on adapting your processes or for personalized advice, please contact us at info@kirkrice.co.uk.

Please note: This article is correct as at the publication date. The answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. The information is based on current tax legislation which may change in future. Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of relief from taxation are subject to change.