Making Tax Digital for VAT: New rules and how to register

Making Tax Digital for VAT: New rules and how to register

Posted: Tue 10th May 2022

From April 2022, all VAT-registered businesses in the UK must use Making Tax Digital (MTD) software to keep digital records.

From April 2026, all unincorporated businesses and landlords whose total yearly income from business or property exceeds £50,000 will need to use MTD for income tax self-assessment as well. The rules will be extended to those with income over £30,000 in April 2027.

However, many business owners are still unaware of the new MTD regulations and how the rules affect them.

Here, Intuit's Jonathan Valentine and Pauline Green explain what MTD is, how to register, and the benefits of using QuickBooks software for paying VAT via MTD.

What is Making Tax Digital (MTD) for VAT?

MTD is the government's system that makes it compulsory for businesses to file VAT returns and manage their tax records online. If you've been doing your accounting on paper or using spreadsheets, you must now switch to this new electronic method.

If your business is registered for VAT and turning over sales of more than £90,000 (the current VAT registration threshold), you can no longer submit your VAT returns via the Government Gateway system. Instead, you must do so through MTD, using approved software.

Voluntarily registered businesses (those with a turnover of less than £90,000) do not need to comply with the MTD rules at present.

How do I register for MTD?

Before you begin, you must first have software that's compatible with MTD (see What is MTD-compatible software? below). Without it, HMRC won't let you file your VAT returns online. If you don't yet have this software, now's the time to get it.

When you're ready to register, visit the sign-up page at GOV.UK. You'll need to provide your:

  • Government Gateway ID and password

  • VAT registration number

  • business email address

If you're a sole trader, you'll be asked for your National Insurance number. If you're a limited company, you'll need your unique taxpayer reference (UTR) number.

It might be that you have an accountant handling VAT on your behalf. If that's the case, the process is slightly different. As well as compatible software, the accountant will need an agent services account and will be asked for more information than that listed above. Find out more at GOV.UK.

The sign-up process is essentially a series of questions about your business – what business structure you have (sole trader or limited company, for instance), your company name, your business contact details and so on.

Once you've signed up, HMRC will confirm your registration by email. Be aware that this can take up to 72 hours to come through. Most importantly, don't submit your VAT return until you've had the confirmation email.

What is MTD-compatible software?

HMRC will only accept VAT returns submitted using software it has approved for MTD. To be compatible, software must be able to connect to the MTD system and let you submit your tax data to HMRC.

Most well-known accounting software packages on the market are now compatible with MTD. If you already use accounting software but aren't sure whether it's compatible, simply check with your supplier.

Before you can get started, you might need to allow your software to submit VAT returns to HMRC. Usually, this means signing in to the software with your Government Gateway details.

Once set up, you use the software to record your purchases and sales, then to submit your VAT returns when necessary.

Bridging software for spreadsheets

If you've been using spreadsheets to keep VAT records, you can continue (for now). However, you must use bridging software to connect your spreadsheet software to the MTD system.

Bridging software takes the data from your spreadsheet, converts it into an MTD-compatible format, then submits the data to HMRC. This is its only function, however, and you won't be able to use it for any other MTD purposes, such as keeping digital records.

Most of the major accounting software packages currently available – including QuickBooks – can act as bridging software for electronic spreadsheets.

How can QuickBooks help with MTD?

QuickBooks is accounting software used by many small businesses and their accountants. It has a number of features, not least its ability to submit VAT returns and keep records for MTD. You can take advantage of these functions whether you're a sole trader, limited company or partnership.

QuickBooks is offering new customers a 75% discount on QuickBooks Online products. Take advantage!

Setting up QuickBooks for MTD

In the video below, Jonathan and Pauline from Intuit explain how to sign up to QuickBooks and take you through the steps of setting up the software for MTD.

Watch the full video: Prepare your new business for Making Tax Digital


Relevant resources

Enterprise Nation has helped thousands of people start and grow their businesses. Led by founder, Emma Jones CBE, Enterprise Nation connects you to the resources and expertise to help you succeed.

You might also like…

Get business support right to your inbox

Subscribe to our newsletter to receive business tips, learn about new funding programmes, join upcoming events, take e-learning courses, and more.