April 2021 changes to MTD for VAT

Making Tax Digital


From 1 April 2021, UK VAT registered businesses will face more MTD rules. These were due to be implemented on 1 April 2020 but were postponed due to the Covid-19 pandemic. 


This will affect all VAT-registered businesses, individuals and charities with a taxable turnover above the VAT registration threshold (£85,000).



Where taxable turnover is below the VAT threshold, individuals and business can voluntarily join the MTD service now. From April 2022 all VAT returns will need to be completed and submitted using compatible MTD software.


What are the new rules?

Under the new rules, UK VAT registered businesses with a turnover over the VAT threshold must keep and maintain VAT records digitally in a compatible software package or use bridging software to connect non-compatible software to HMRC systems.


This digital record keeping requirement is compulsory for all VAT periods beginning on or after 1 April 2021. Records included under this requirement include sales and purchase invoices with VAT. Accounting records not specific to VAT return requirements are not included.


If more than one software package is used the packages need to be linked digitally. The links can involve:

  • using formulas to link cells in spreadsheets;
  • emailing records;
  • putting records on a portable device to give to an agent;
  • importing and exporting XML and CSV files; and
  • downloading and uploading files.
  • Digital should not involve:
  • ‘cut and paste’ manual adjustments to move data; and
  • any manual adjustments and consolidations of group returns in spreadsheets.


HMRC recognises that there will be circumstances during the preparation of a VAT return when calculations may need to be made outside software. HMRC will therefore continue to allow the use of manual calculations for certain VAT schemes.


The digital links between the software packages need to be in place before the business’s first full VAT period after the 1 April 2021. However, HMRC has offered an extension to the 1 April 2021 deadline if there is no solution to IT issues and the operation of an uninterrupted ‘digital journey’.



From 1 April 2021, HMRC is introducing a penalty system for failing to meet MTD obligations. These penalties, or surcharges, will apply to the first completed VAT return on or after this date.


The penalties will be applied as follows:

  • a default is recorded for a failure to observe the MTD rules or missing a filing. In this case a surcharge period lasting 12 months applies.
  • if there is another failure a surcharge % applies to the VAT due on the latest return.
  • if there are additional failures within 12 months a point system applies.


The points result in % surcharges, starting at 2% and increasing to 15%, for each accumulated failure.


There will also be fines and interest charges if there are errors in the VAT return. Fines may be 100% of the VAT due or over-claimed if returns include careless or deliberate inaccuracies or 30% if the taxpayer does not inform HMRC that their assessment is too low. Interest will be charged at 3% of the VAT due.


Lentells are able to work with you ensuring you are fully prepared for the introduction of Making Tax Digital. As QuickBooks Platinum ProAdvisors we can recommend the best package for your business and provide on-going support and training. Please contact your local Lentells office;

Chard - 01460 64441, chard@lentells.co.uk

Seaton - 01297 20584, seaton@lentells.co.uk

Taunton - 01823 286274, taunton@lentells.co.uk