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  1. VAT
  2. VAT report
  3. VAT return

Making Tax Digital (MTD) – What is Making Tax Digital?

Making Tax Digital, or MTD, is an HMRC initiative that replaces manual tax administration with an online, digital system for reporting and paying tax.

Debitoor invoicing software is fully compliant with Making Tax Digital. Try Debitoor for free with our 7 day free trial.

Making Tax Digital is part of the British Government’s plan to transform the way individuals and businesses manage their taxes. The goal of MTD is to make it easier, more efficient, and more effective for taxpayers to report and pay the right amount of tax.

At the moment, Making Tax Digital only applies to VAT. Eventually, MTD will also apply to a number of other taxes, but this won’t come into effect until at least April 2020.

Making Tax Digital for VAT

There are two parts to Making Tax Digital’s digitalisation of VAT: online records and online tax returns.

MTD and digital records

Making Tax Digital requires certain financial records to be kept, maintained, and preserved digitally. These records are known as your ‘electronic account’ and include:

  • The name of your business
  • Your business’s main address
  • Your VAT registration number
  • Any VAT accounting schemes that you use

You will also need to keep a digital record of the following details for each supply (i.e. taxable sale) that you will report to HMRC:

  • The time of supply. For businesses using accrual accounting, this is the date that you issue a VAT invoice. For businesses using cash accounting, this is the date that you receive payment.
  • The net value of the supply, not including VAT.
  • The rate of VAT charged (20%, 5%, or 0%).

All businesses need to keep additional records, such as invoices and credit notes, but MTD does not require you to keep these records digitally.

MTD and digital VAT Returns

When companies are registered for VAT, they are responsible for submitting annual VAT Returns. Through VAT Returns, businesses report the VAT they have spent on taxable purchases as well as the VAT they’ve charged on taxable sales. The difference is then paid to or claimed from HMRC.

Before Making Tax Digital, business had to record, report, and pay their VAT manually. From April 1st 2019, HMRC will accept digital VAT Returns that are submitted through authorised, MTD-compatible software.

Under MTD, you can still choose whether to submit your VAT Returns yourself or get an accountant to do it on your behalf.

Who needs to use Making Tax Digital?

The rules for Making Tax Digital will apply to VAT-registered organisations that have a taxable turnover above the £85,000 VAT threshold.

If your company is registered for VAT but has a VAT taxable turnover of less than £85,000, you aren’t required to use Making Tax Digital. This means that you can choose whether you would rather use MTD-compliant software to submit VAT returns and keep digital financial records or keep physical records and submit your VAT returns manually.

If your business is not registered for VAT, you do not need to keep VAT records or sumbit VAT Returns.

Making Tax Digital timeline

Making Tax Digital will apply to almost all VAT-registered companies from April 1st 2019. If your tax periods don't match up with the April 1st start date, you will need to start keeping digital records and submitting online VAT Returns from the first day of your next VAT period.

For example, you submit a VAT Return that covers February 1st to April 31st 2019. Although the VAT Return is submitted after April 1st, it does not need to be sent through MTD-compliant software. You will need to start keeping digital records from May 1st 2019, and you will need to submit your VAT Return through authorised, compatible software.

There are a few organisations exempt from the MTD deadline in April, such as trusts, VAT groups, and not-for-profit organisations. These organisations have a deferred deadline of October 2019.

Making Tax Digital for Corporation tax and Income Tax is not expected to be rolled out until at least April 2020.

Making Tax Digital and Debitoor

Making Tax Digital requires VAT Returns to be submitted through authorised Making Tax Digitial software. From April 1st 2019, Debitoor users on our larger plans will be able to submit their VAT returns directly to HMRC with Debitoor’s Making Tax Digital integration.

And if you aren’t yet covered by MTD, you’ll still be able to use Debitoor to create VAT reports that help you submit your tax returns manually.