Get Digital or Face The Fine

Making Tax Digital for VAT – new penalties for non-compliance

HMRC have issued guidance for VAT-registered business and their agents on how to avoid penalties for non-compliance with the Making Tax Digital for VAT (MTD) rules.

Their focus appears to be those who file returns but do not use functional compatible software, with a new £400 per return penalty for offenders.

Businesses could also face additional daily penalties if they don’t keep their records digitally. HMRC can charge penalties between £5 to £15 for every day the business doesn’t meet their requirements.

Summary of requirements

To keep yourself right, here are some of the key areas of HMRC guidance –

You must file your VAT return using functional compatible software

Functional compatible software means a software program, or set of software programs, products or applications (apps) that can:

  • record and store digital records
  • provide HMRC with information and VAT returns from the data held in those digital records
  • receive information from HMRC

You must keep records digitally

You must keep some records digitally within your functional compatible software. This is known as your ‘electronic account’.  Your electronic account must contain:

  • your business name, address and VAT registration number
  • any adjustments from calculations you make outside your functional compatible software for any VAT accounting schemes you use
  • the VAT on goods and services you supplied, meaning everything you sold, leased, rented or hired (supplies made)
  • the VAT on goods and services you received, meaning everything you bought, leased, rented or hired (supplies received)
  • any adjustments you make to a return
  • the ‘time of supply’ and ‘value of supply’ (value excluding VAT) for everything you bought and sold
  • the rate of VAT you charged on goods and services
  • your reverse charge transactions, where you record the VAT on the sale price and the purchase price of the goods and services you buy
  • copies of documents that cover multiple transactions made on behalf of your business, like those made by volunteers for charity fundraising, a third-party business or employees for expenses in petty cash

Although all transactions must be contained in your electronic account, you don’t need to scan paper records like invoices and receipts.

Help to select, source and set-up your MTD software

If you need advice on which compatible software would be best for your business, or need training for software you already have, our Business Support Team are here to help for all things Making Tax Digital and complying with MTD rules. Make an appointment through or call either 0131 226 2233 or 01383 628800.

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