Making Tax Digital

The UK left the European Union on 31 January 2020. As part of its Brexit Withdrawal Agreement, it will remain inside the EU VAT regime until 31 December 2020. During this time, there will be no changes to UK VAT rules, treatment of transactions or filings. Read Avalara’s free 2020 Brexit guide for details on Brexit VAT and customs issues.

Phase 2 for MTD for VAT stated on 1 April 2021 following a 1-year delay for COVID-19. This imposed digital recordkeeping and digital journey requirements, with penalties for infringement and late MTD filings for the first time.

The latest stage followed the April 2019 requirement for all UK VAT registered businesses over the registration threshold to file returns via a new API interface with HMRC

Avalara's VAT Reporting software is MTD recognised by HMRC.

MTD for VAT: Penalty regime starts 1st April 2021

On 1 April 2021, the second phase of UK Making Tax Digital (‘MTD’) for VAT programme was implemented. HMRC has offered an option to apply for a further extension to this deadline if it can be shown there is no reasonable fix to legacy IT issues and the operation of an uninterrupted ‘digital journey’. Businesses applying for the extension must include a comprehensive plan to resolve any break in the digital journey. Avalara can help you understand if you are eligible, and how to apply to HMRC.

April 2021 VAT MTD digital journey and penalties

VAT was the first tax to launch on MTD. Other taxes, including income and corporation tax will be added.

Making Tax Digital is about bringing the tax system into the digital age, saving businesses time, and in the long run – money.

VAT MTD requirements

The requirements will only apply to businesses over the UK VAT registration threshold (currently £85,000).

This creates the following requirements:

  • Storing data digitally on functional compatible software package
  • Calculation of VAT liabilities by the automated software
  • File the 9-box UK VAT return data via the HMRC’s JSON API platform, under the ‘API First Strategy’. This replaces keying-in or the existing XML API
  • New authentication process
  • Receive digital information in return from HMRC
  • A controlled process around adjustments and error corrections

What information must be kept digitally?

The following data must be stored digitally:

  • The business name
  • The address of the principle place of business
  • VAT registration numbers
  • A record of any VAT accounting schemes that are used
  • For each taxable supply:
    • The time of supply
    • The value of the supply
    • The rate of VAT charged
  • For each VAT return submitted:
    • The output/input tax
    • The output/input tax on acquisitions from other EU member states
    • The tax required to be paid/reclaimed under the reverse charge for supplies
    • Any tax to be paid following a correction or error adjustment

Need help with your UK VAT compliance?

Researching UK VAT legislation is the first step to understanding your VAT compliance needs. Avalara has a range of solutions that can help your business depending on where and how you trade. 

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