Making Tax Digital HMRC VAT compliance checks

Based on our recent experience, one of the more common HMRC compliance requests is checking compliance with Making Tax Digital (“MTD”) for VAT, and officers are increasingly likely to apply penalties for failure to comply.

MTD for VAT requires all VAT registered businesses to keep records digitally and file their VAT returns using software.

The rules dictate that VAT registered businesses must maintain functional compatible software (this being a software program, product or application or any combination or set of these) which is capable of recording and preserving digital records, and providing HMRC information and returns from data held in those records using an API platform and receiving information from HMRC, using an API platform.

The three MTD requirements are as follows:

1. Digital links – where data is transferred or exchanged within and between software programs, applications or products, this must be done digitally to ensure the information continues to form part of your electronic account.


2. Digital records – certain records and data points must be kept and preserved digitally, within functional compatible software.


3. Digital filing – the submission of the information to HMRC through HMRC approved API software.

Penalties for failure to comply with MTD requirements

Now that MTD has been around for a while it appears that HMRC has tightened its policy on applying penalties if MTD requirements are not being met. There are three types of MTD penalties:

1. Filing of VAT returns: If filed not using functional compatible software this can attract a penalty from HMRC of up to £400 for every return filed in this manner.


2. Digital records: If the requirements are not met, HMRC may charge a penalty of between £5 to £15 for every day on which this requirement isn’t met.


3. Digital links: If this requirement is not met, HMRC may charge a penalty of between £5 to £15 for every day on which this requirement isn’t met.

How can we help? 

Our VAT team can review your VAT returns preparation process to identify potential risks and confirm compliance with the UK’s Making Tax Digital (“MTD”) rules.

The scope of an MTD compliance review could include the following: 

• An on-site visit or an online Teams meeting to undertake a process walkthrough of the current VAT return preparation process.


• Obtaining an understanding of the VAT return process from source to submission, including understanding the interaction and use of the relevant accounting systems, adjustments made, and the review process undertaken.


• Documenting our findings and recommendations in a short form report. If, during the course of our review, we identify other VAT opportunities or risk areas, we will flag these to you in our report for further consideration. 

Contact us

If you would like to discuss MTD for VAT in more detail, please contact our VAT team and we will be more than happy to help you.