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Do I need to register for Making Tax Digital?

August 26, 2022Making Tax Digital (MTD) for VAT officially underway, and with Making Tax Digital for Income Tax Self Assessment (ITSA) and Corporation Tax in the pipeline, the MTD scope is only set to broaden.With plans to expand within the next 5 years, you might be wondering if you need to register your business, and if so, when?To make sure you're ready for MTD, we’ve outlined everything you need to know about MTD registration criteria, registration deadlines and a step-by-step on how to register your business for MTD.

Do I need to register for Making Tax Digital for VAT?

After the launch of Making Tax Digital Phase 2, as of April 2022 all VAT-registered business owners are now legally required to follow MTD for VAT rules.Making Tax Digital is a government initiative designed to digitalise the way tax data is stored and submitted to HM Revenue and Customs (HMRC). Under this scheme, all MTD-registered businesses must keep digital records and submit their tax returns using MTD-compliant software.

Making Tax Digital Phase 2 means all VAT-registered business owners must now comply with MTD rules, broadening the scope to encompass business owners who registered their businesses on a voluntary basis and are earning below the VAT threshold.

When do I need to register for Making Tax Digital for VAT?

If you plan on registering your business for VAT, you’ll need to start following MTD requirements immediately. This is due to the latest update in MTD for VAT legislation, stating all VAT-registered business owners must register for VAT, regardless of turnover.You’ll need to register for VAT if:

Your total VAT taxable turnover for the last 12 months was above £85,000You expect your turnover to go over £85,000 in the next 30 days

If the following apply, you’ll also need to register your business for VAT, irrespective of your taxable turnover:

You’re based outside the UKYour business is based outside the UKYou supply any goods or services to the UK (or expect to in the next 30 days)

If you register your business late, you’ll need to pay VAT on any sales you’ve made since the date you were supposed to register, and may need to pay a penalty.

After you’ve successfully registered your business for VAT, you’ll receive the following:If you’re already a VAT-registered business owner, you’ll need to register for MTD VAT as soon as possible. Unless you’re exempt, paper filings are no longer accepted by HMRC, meaning any submissions that aren’t made through MTD-compatible software will be rejected.

If you plan to pay by Direct Debit, register at least 7 days before when your next return is due, or 5 days after your return is due. If you aren’t paying by Direct Debit, you’ll need to sign up at least 3 days before your return is due.Avoid signing up to MTD within these time brackets, as registering too close to the payment deadline could mean you end up paying your VAT bill twice.As for storing digital VAT records, you’ll need to start your electronic record-keeping from the start of your first Making Tax Digital accounting period.In the table below, you’ll get a clearer picture of when to sign up for MTD for VAT, when to submit your VAT Return and when your first MTD accounting period is based your last VAT accounting period prior to signing up to Making Tax Digital.

How to register for Making Tax Digital for VAT

To sign up to MTD for VAT, you’ll need to follow these steps:

Sign up for MTD-compatible software

Since this is one of the first questions you’ll be asked during the MTD registration process, make sure you have MTD-compatible software in place beforehand.

Tell HMRC how you’ll store your VAT records

This is where you state whether you’ll be using accounting software or a combination of spreadsheets and bridging software. If you’re an Ember user, you’ll need to select the “accounting software” option.

Enter details about your business

Once you’ve completed the above, you’ll then be asked to log into your Government Gateway account, where you’ll need to tell HMRC:

What records do I need to keep under MTD for VAT?

To make sure you’re paying the right amount of tax, HMRC requires you to keep records of the following

Everything you buy and sell, including zero-rated, reduced and VAT exempt itemsCopies of all invoices issuedEvery invoice you receive, whether that’s paper or digitalSelf-billing agreements (where the customer prepares the invoice) and the name, address and VAT number of any self-billing suppliersDebit or credit notesAny goods you give away or take from stock for private useGeneral business records, such as bank statements, cash books, cheque stubs, paying-in slips and till rolls

To stay compliant with MTD for VAT, you’ll need to store the following records digitally:

VAT on the goods and services you supply (supplies made)VAT on the goods and services you receive (supplies received)The ‘time of supply’ and ‘value of supply’ (value excluding VAT) for everything you buy and sellAny adjustments you make to a returnReverse charge transactions — where you record the VAT on both the sale price and the purchase price of goods and services you buyAny VAT accounting schemes you useYour total daily gross takings if you use the retail schemeItems you can reclaim VAT on if you’re on the Flat Rate SchemeYour total sales, and the VAT on those sales, if you use the Gold Accounting Scheme

Can I be exempt from Making Tax Digital for VAT?

While MTD is compulsory for all VAT-registered business owners, you can apply to be exempt for the scheme.

You’re already exempt from filing VAT Returns onlineYou or your business are subject to an insolvency procedure

If neither of the above apply to you, you’ll still be able to apply for exemption if you can prove that it’s not reasonable or practical for you to use computers, software or the internet.This could be due to:

You age, a disability you have or where you liveYou don’t use computers on religious groundsAny other reason why it’s not reasonable or practical

HMRC considers each application on a case by case basis, and once a verdict is reached will send a letter with their final decision. Until then, you’ll need to continue filing your VAT submissions the way that you usually do.

What happens if I don’t comply with MTD?

Failure to comply with MTD for VAT could see you facing a fine.As of January 2023, HMRC is introducing a points-based system that means only those who regularly make mistakes and miss deadlines are fined.Every time you miss a submission deadline, HMRC will inform you that you’ve received a point. After a certain number of points, you’ll be charged a £200 penalty. After that, every late submission will land you a penalty, although your points won’t increase in number.Your penalty threshold will be determined by how often you file your returns, and is as follows:

Do I need to register for Making Tax Digital for Income Tax?

Keep digital accounting records of your business income and expenditureSend quarterly updates of your business income and expenses to HMRCFinalise your business income and submit your final declaration

Your qualifying income is your total income in a tax year from self-employment and property before expenses are deducted. You can report other sources of income, such as wages from employment or interest on savings, through MTD-compatible software, but keep in mind these won’t contribute towards your qualifying income.If you’re earnings are from a combination of self-employment and rental income, you’ll need to work out your gross income to see if you need to sign up to Making Tax Digital for Income Tax (MTD for ITSA).For example, if you’ve made £5,000 from rental income and £7,000 from self-employment in a tax year, your total qualifying income will be £12,000 — meaning you’ll need to register for MTD for ITSA.

Can I be exempt from registering for MTD for ITSA?

You won’t need to register for MTD for ITSA if your qualifying income is below £10,000 or if your income comes under one of these ineligible categories:

TrustsEstatesTrustees of registered pension schemesNon-resident companies

How to register for Making Tax Digital for ITSA

Before you begin the registration process, you’ll need to be registered to file Self Assessment tax returns, and have a software that is compatible with MTD for ITSA.You’ll also need the following information close to hand:

What about Making Tax Digital for Corporate Tax?

At the time of writing, MTD for Corporation Tax is due to launch in April 2026, with a trial period proposed for April 2024.Under MTD for Corporation Tax, companies will need to:

Maintain digital records of their total income and expenditure in a tax yearProvide quarterly updates of income and expenditure to HMRC using MTD-compatible softwareFile Corporate Tax Returns using MTD-compatible software