Since 1 April 2022, all VAT-registered businesses are required to comply with Making Tax Digital (MTD) requirements. This includes using compatible software to keep VAT records and file VAT returns.

Despite this requirement, it has remained possible for businesses to file VAT returns through their VAT online account. ICAEW’s Tax Faculty understands that there are several hundred thousand businesses filing in this way.

From 1 November 2022, businesses that file VAT returns on a monthly or quarterly basis will no longer be able to submit returns through their VAT online account. They must file through MTD-compatible software. Businesses that do not file their VAT returns through MTD-compatible software may have to pay a penalty.

Businesses already in the default surcharge regime may incur a surcharge if their next VAT return (beginning before 1 January 2023) is not paid on time. Direct debit payments will not be taken on time if the return is not filed on time. Businesses may need to pay through alternative means to avoid incurring a default surcharge if they are unable to file their VAT return because they have not signed up to MTD VAT.

Periods beginning on or after 1 January 2023 will be subject to the new late submission and late payment penalties.

Exemption

Businesses already exempt from MTD will still be able to file VAT returns through their VAT online account. Businesses currently exempt from filing VAT returns online and businesses subject to insolvency procedures will also be automatically exempted from this change.

A taxpayer can check if they can apply for an exemption from MTD if it is not reasonable or practical for them to use computers, software or the internet. HMRC will consider each application on a case-by-case basis.

Sign up for MTD VAT

Businesses that have not yet signed up to MTD must follow these steps now:

1. Choose (or build) MTD-compatible software.
2. Keep digital records for current and future VAT returns.
3. Sign up for MTD and file future VAT returns using MTD-compatible software.

It is also possible for businesses to appoint an agent to act on their behalf and file MTD VAT returns (though this will still require the business to sign up for MTD).

Businesses not yet registered for VAT will automatically be signed up to MTD when they register for VAT through HMRC’s new VAT registration service. Please note that businesses wishing to be exempt from MTD must apply for exemption separately using the link above.

More information

• Less than one month left for VAT businesses to be ready for Making Tax Digital filing