Making Tax Digital for VAT: what a small business needs in place
Every VAT-registered business has to keep digital records and file its VAT returns through compatible software. What that means day to day, and where Osmuch fits today.
By The Osmuch team · · 5 min read
In short
- Making Tax Digital for VAT applies to every VAT-registered business, whatever its turnover.
- You must keep your VAT records digitally and file returns through MTD-compatible software.
- Data moving between the software you use has to move digitally, not be retyped.
- Returns are usually quarterly, due one month and seven days after the end of the period.
- Osmuch works out your return from your records; filing straight to HMRC from Osmuch is waiting on HMRC's approval.
Making Tax Digital, usually shortened to MTD, is HMRC's requirement that VAT records are kept digitally and VAT returns are sent from software rather than typed into a website. It has applied to every VAT-registered business since April 2022, including businesses that registered voluntarily below the threshold.
This is a general overview. HMRC's own guidance is the authority, and your accountant can tell you exactly what applies to your business.
What you have to do
- Keep your VAT records in digital form: your business details, and for each sale and purchase the date, the value and the rate of VAT.
- Keep digital links: when figures move from one piece of software to another, they move digitally, not by retyping.
- Send your VAT returns to HMRC through MTD-compatible software.
- Keep your records for at least six years.
Deadlines
Most small businesses file quarterly. A return and its payment are usually due one calendar month and seven days after the end of the VAT period. Late returns build up penalty points, and late payment can bring penalties and interest, so it is worth knowing your dates.
Where the records come from
The easiest way to meet MTD is for the VAT records to be a side effect of running the business: if every quote, invoice, sale, expense and supplier bill carries its VAT at the moment it is created, the return is simply the sum of what you have already recorded. The hard way is to rebuild the figures at the end of each quarter from paper receipts and a spreadsheet.
The nine boxes
A VAT return has nine boxes, covering the VAT you charged, the VAT you can reclaim on purchases, the net value of your sales and purchases, and any trade with the EU that still applies to Northern Ireland. If your records are complete, the boxes can be worked out automatically. What cannot be automated is making sure every purchase with VAT on it has actually been recorded, so a regular habit of logging receipts matters.
Questions
Do I need Making Tax Digital if I'm not VAT registered?
Making Tax Digital for VAT applies to VAT-registered businesses, including those that registered voluntarily. If you are not VAT registered, it does not apply to your VAT, though other parts of Making Tax Digital are being introduced for income tax.
Can I still keep my records in a spreadsheet?
Yes, as long as the spreadsheet is linked to MTD-compatible software that sends the return, and figures move between them digitally rather than being retyped.
Can Osmuch file my VAT return to HMRC?
Not yet. Osmuch works out the return from your records for each period, and the connection to HMRC is built and waiting on HMRC's approval. Until it is switched on, the return is filed through MTD-compatible software, and your accountant can advise the best way to do that from your records.
Doing this in Osmuch
Osmuch records the VAT on every quote, invoice, sale, expense and purchase order as it is created, and works out the nine boxes of your VAT return for each period from those records, with the transactions behind each figure one click away. Filing straight to HMRC from Osmuch is built and waiting on HMRC's approval of the software; until it is switched on, you or your accountant file the figures through MTD-compatible software.
Guide: how vat works in osmuch · Guide: inside the accounting hub · Guide: exporting your records