Mind the Gap

Making Tax Digital (MTD)

MTD is the first major initiative by HMRC to digitalise taxation and transform the UK’s tax reporting landscape to, in their own words, “become one of the most digitally advanced tax administrations in the world”.

If you are a VAT registered business that has crossed the £85,000 threshold currently in place, you have a legal obligation to comply with the MTD regulations – please read on.

MTD in respect of VAT is the first step in a broader transformation towards a more effective, efficient system which will eventually assist tax payers in getting their tax obligations correct but needless to say, it comes with various challenges. It is also expected that from the year 2020 corporate and income tax data will also be required to be stored and reported digitally.

In addition to simplification, the likely key driver behind this initiative is to close the consolidated EU VAT Gap. The VAT Gap is effectively the difference between revenue the tax authorities expect and what they actually receive. It provides an estimated loss of revenue for a State based on fraud, evasion, avoidance, insolvencies and calculation errors. The most recent report conducted on this topic estimated the total loss stood at €147.1 billion or 12.3% of total expected revenue in 2016.

The immediate question for the 2.3 million UK VAT registered companies and the most common question I receive is - what changes do I need to make to comply from the 1st of April 2019? In short, a business must store it’s records digitally and connect with the HMRC Application Programming Interface (API) to file VAT returns.

From our perspective we see 3 solutions for our clients:

  1. See if your current system is accredited by HMRC; or
  2. Develop of your own solution; or
  3. Use a HMRC accredited bridging software.


Holistically, there are other tax challenges that impact the world of VAT compliance such as the possibility of a hard Brexit on the 29th of March 2019. Brexit is, of course, taking up most of the conversations and the fact that MTD coming into force the next working day isn’t the most idyllic timing.  The risk of non-compliance however will be points based and quite significant so it’s advised to get this in order sooner rather than later.

This trend towards digitisation of taxation is likely to evolve over the coming years in the United Kingdom. Comparatively to other EU member states like Spain, Italy and Hungary where e-invoicing and real-time reporting is required - UK’s MTD is a light touch approach, for now.

MTD implementation is deferred for 6 months for businesses that are, non-established businesses, Trusts, ‘Not for profit’ organisations that are not set up as a company, Public sector entities (such as Government departments, NHS Trusts) required to provide additional information on their VAT returns, Local authorities, Public corporations, Businesses required to make payments on account, Businesses with group and divisional registrations and Businesses using the Annual Accounting scheme.

Businesses can also seek exemption from MTD implementation on religious and practicality basis but this must first be approved by HMRC and is not an automatic right.

If you need further advice or have questions on MTD or any VAT/GST related topics, please contact Rick Verma on rick.verma@vatglobal.com


The One Nucleus blog is written by individuals and is not necessarily a reflection of the views held by One Nucleus.