HMRC wants to transform the UK tax system to make it more effective, efficient and easier for taxpayers to get their tax right. Making Tax Digital (MTD) is a key part of achieving that objective requiring taxpayers to make greater use of current digital technology.

HMRC’s vision involves replacing paper tax returns with digital records, that will enable taxpayers to send their tax information to HMRC direct from those records quarterly, thus having
a ‘real-time’ idea of their tax liabilities presented to them in their digital tax account.
MTD is being introduced in phases and will, in due course, affect all types of business.


For return periods starting on or after 1 April 2019, VAT registered businesses with a taxable turnover above the VAT threshold (£85,000) will have to:
• keep their VAT records digitally, and
• transmit their VAT return information to HMRC using MTD compatible software.
VAT registered businesses with turnover on or below the threshold can sign up to MTD for VAT if they wish.
This means the imminent end of the manual record keeping for many businesses, while others will need to review their accounting software to ensure it is compatible with HMRC’s new ‘Gateway’ system and incorporates the necessary digital bridging software.

Do I need to change my accounting software?

Accounting records will need to be kept digitally and every business will need to use a package (something that HMRC describes as ‘functional compatible software’) that will communicate with HMRC’s system. You should initially consider whether your existing software is compatible with the requirements of MTD for VAT or when your software provider intends to release a compatible version.
Businesses will be able to continue to use a spreadsheet as a digital record for VAT as long as it meets MTD requirements and is able to transmit the necessary data to HMRC using compliant bridging software. However, there will be limitations on the current use of spreadsheets.