Making Tax Digital (MTD) is one of the best steps towards digitising the tax system in the UK. Now, businesses no longer need to manually file their VAT return. Instead, they will report VAT using HMRC-recognised software. Moreover, under the MTD rules, businesses will have to file quarterly VAT returns to HMRC. This means businesses will have to submit their VAT returns every 3 months to HMRC.
This is a great step providing businesses with greater financial visibility and reducing errors in VAT filing with cloud-based accounting technology.
In this blog, we discuss in detail the importance of quarterly VAT reporting to HMRC, MTD VAT quarterly filing process, how to prepare for it, and ensuring complete HMRC compliance.
Making Tax Digital is a VAT initiative that has been introduced by HMRC on April 1 2022. It aims to simplify VAT compliance and reduce errors by digitising the VAT Return process. MTD has made it mandatory for VAT-registered businesses to:
As of April 2022, all businesses which are VAT registered need to follow the MTD. This means they have to employ an MTD software and submit their updates quarterly to HMRC. Except for the VAT-exempt businesses, the following entities are liable to register for MTD VAT.
Partnerships
Limited Companies
Sole traders
Non-UK business registered under UK VAT
You may be exempt from VAT, due to your age, disability, remote location, or you may be offering certain services which make you exempt from VAT, like Finance, education, healthcare, and more.
The following aspects are involved in Making Tax Digital quarterly reporting.
You need to maintain regular digital records. This means that all your business details and VAT number, scheme details, sales and purchase records, and summary of your VAT return data must be updated with HMRC through a cloud based MTD compatible software.
Use software that is compatible with MTD. HMRC have issued a list of recognised software that can be used for HMRC MTD quarterly filing. You must maintain and update the digital VAT record using that MTD recognized software.
Several HMRC-approved software includes XERO, QuickBooks, Sage 50, Free Agent and more.
After you register for MTD, you have to submit VAT quarterly. This means you will file a VAT return 4 times a week. Here’s a complete breakdown on how you will need to file your VAT return quarterly.
Business VAT Record Timeline | Submission Deadline |
1st January – 30th March | 7 May |
1st April – 30th June | 7 August |
1st July – 30th September | 7 November |
1st October – 30th December | 7 February (next year) |
MTD compliance for businesses that meet the VAT registration threshold is compulsory. HMRC has laid out certain penalties for late submission and updates of your VAT for quarterly submission. HMRC has introduced a point-based penalty system, and there are also interest-based penalties for the late submission of VAT.
The point-based penalty system, due to late quarterly updates, works in the following way
How to Remove the 3 points for late filing
If quarterly filers have 3 penalty points, then they will have to file returns accurately on time for 24 consecutive months, that is, the next 8 quarterly filings, in order to remove the 3 penalty points.
How to Remove the 4 points to late filing
File VAT accurately for 12 consecutive months, i.e filing VAT on time for the next 4 filings.
Late Payment Penalties
If any quarterly VAT is paid late, you will also be charged for the interest on your delayed MTD VAT submission UK in the following manner.
Exemptions from MTD
You will not be able to register for Quarterly reporting MTD if you are
You must directly make an application to HMRC following your MTD registration for quarterly filings.
Quarterly reporting brings countless benefits for businesses in the UK. Using an HMRC-recognised software has enabled businesses to file accurate returns to HMRC without any delays. Here’s what it can help with.
Get Rid of Immense Data Management for VAT
Businesses that used to file VAT returns annually used to find it difficult to manage a large volume of business data and calculate VAT liability. Making Tax Digital has made it really easy for businesses to calculate their liabilities with the HMRC-approved software. After updating their business sales and purchases data, the software automates calculating your VAT liability, making it easy for you to calculate your liability with minimal manual effort.
Improved Financial Visibility
With MTD for VAT, businesses are able to have a clear financial image of their business. Businesses are compulsory to update their financial information on the HMRC recognised data. With UpToDate information, businesses are able to get an effective financial understanding and implement the VAT scheme effectively.
No worry of Erroneous VAT Filings
Previously, businesses used to maintain manual records and file VAT returns to HMRC. MTD has eliminated the paperwork entirely. Moreover, you can integrate the API with HMRC software, which allows you to send your business’s financial data directly to the HMRC system. Now HMRC automatically calculates your VAT and prepares your VAT return in a format that HMRC needs. Therefore, eliminating flawed VAT calculations or any need for manual paperwork.
Reduced Year-End Pressure
With MTD for VAT quarterly updates, much of the tax load from HMRC is spread out the entire year. Therefore, there is less pressure on the workload to file VAT Return as compared to filing the entire return annually. This makes businesses easy to ensure compliance and manage stress during the tax season.
Seamless Cashflow Management
While keeping your financial records digital, you can have an even clearer image of your business’s financial position. MTD software often provides a client’s portal that visualises financial data, helping you to understand where you are overspending and where financing is needed. It helps us make better cashflow decisions and forecast strategically, streamlining growth opportunities.
If you haven’t registered for MTD today, you should start preparing now and get your business registered with HMRC for MTD VAT. Here’s a step-by-step guide on how your business can register for MTD for VAT and comply with MTD reporting requirements UK.
Register for MTD for VAT
To begin with VAT MTD, register your business with HMRC’s MTD VAT portal. You should register at least 72 hours before filing for Quarterly VAT returns MTD.
Choose MTD-Compatible Software
Choose HMRC-recognised MTD software. Make sure that the right software is chosen that is according to your unique business size and needs. It must also assist with the features of invoice creation, bookkeeping, Automatic VAT calculation and more.
Maintain Accurate Digital Records
Input your VAT transactions regularly on the MTD software. Try avoiding errors with data entry since 27% of all accounting errors are associated with wrong data entry. Also, regularly reconcile bank feeds to ensure that your data is precise and VAT is filed accurately.
Also, double-check check your 0% exempt and reverse charge rule applies to any of your transactions to ensure you don’t overpay for your VAT.
Set Quarterly Reminders for Your VAT Return
Always know your MTD VAT reporting deadlines. The deadline is 1 month and 7 days after each 3-month quarter. Setting reminders helps you notify yourself on time that you need to file your VAT return on time, preventing delays.
File Your VAT Return
Now you can finally file your VAT return for every quarter, using the HMRC-recognised software with accuracy and compliance.
Quarterly MTD reporting of your business VAT under MTD is not just a mere obligation from HMRC. However, it is an effective opportunity to digitise your accounting and tax filing data. This way, you can make your VAT filing accurate and business data readily available anytime for use.
With the right MTD software in place that is compatible with your business needs, businesses can ensure stress-free compliance, avoid Making Tax Digital deadlines pressures and get real-time insights on financial data.
Need guidance with MTD quarterly submissions? Lanop Business and Tax Advisors helps clients ensure a smooth transition to HMRC-recognised MTD software, making VAT filing compliant and stress-free.
All VAT-registered businesses were required to report their VAT digitally and file VAT Returns on MTD-compatible software, regardless of their turnover, from 1 April 2022.
MTD VAT returns must be submitted one month and seven days after the VAT period. For example, if your VAT quarter ends on 30 June, the due date to pay and submit your return is 7 August.
You need to file using MTD-compatible software to file your quarterly VAT Return. Here’s how you can submit your VAT return:
If your business meets the VAT threshold provided by HMRC, which is £90,000, you need to register with HMRC MTD for VAT.
To ensure compliance with MTD for business VAT, you must follow the above steps.
Yes, you must file quarterly digital reports under MTD. The annual VAT return is formed for those businesses that qualify (Annual Accounting Scheme).
Aurangzaib Chawla is a UK-based tax advisor and Managing Partner at Lanop Business & Tax Advisors.
With nearly two decades of experience, he supports individuals, landlords, and SMEs with proactive tax planning and compliance. Known for simplifying complex tax legislation, Zaib helps clients minimise liabilities while building sustainable, tax-efficient strategies for long-term success.
Aurangzaib Chawla is a UK-based tax advisor and Managing Partner at Lanop Business & Tax Advisors. With nearly two decades of experience, he supports individuals, landlords, and SMEs with proactive tax planning and compliance. Known for simplifying complex tax legislation, Zaib helps clients minimise liabilities while building sustainable, tax-efficient strategies for long-term success.
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At Lanop, I am providing my services as the Managing Partner and Tax Specialist. My expertise includes helping medium and small-scale businesses in their accountancy and legal requirements, business start-up support, strategic review, payroll system review and implementation, VAT and tax compliance to cloud accounting. I am also an expert in financial reporting, identifying and monitoring risks, strategic business development, client retention, market acquisition and deals closure by carefully planning my sales cycle.
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