Is Your Business Ready for Making Tax Digital? A Reminder for VAT-Registered Businesses
Making Tax Digital for VAT has been a mandatory requirement for VAT-registered businesses for a considerable time now, which makes it tempting to assume compliance is simply a solved problem for most businesses. In practice, genuine compliance gaps still show up regularly, often in businesses that believe they're fully compliant because they're using accounting software, without realising the specific requirements go further than simply having digital records in some form.
It's Not Just About Using Software
A common misunderstanding is that Making Tax Digital compliance is satisfied simply by using any accounting or bookkeeping software, rather than a system that specifically meets the requirements - maintaining digital records in the prescribed format and submitting VAT returns through software that connects directly to HMRC's systems, rather than manually keying figures into HMRC's online portal from information held elsewhere. A business using spreadsheets alongside separate submission software, without a properly configured digital link between the two, can fall short of genuine compliance even while technically filing accurate VAT returns each quarter.
Digital Links Matter More Than People Realise
One of the more technical, and more commonly overlooked, requirements is around digital links - the requirement that once data enters your digital records, any transfer or exchange of that data between different pieces of software must happen digitally, without manual re-typing or copying and pasting breaking the digital chain. Businesses using a combination of tools - a separate stock system, a spreadsheet for certain calculations, a different platform for a particular part of the business - need to check that data flows between these systems in a way that maintains a genuine digital link throughout, rather than relying on someone manually transferring figures at any point in the process.
Keeping Digital Records From the Point of Transaction
Genuine compliance requires that certain core VAT information is recorded digitally from the point each transaction occurs, rather than being summarised or entered into digital form only when a return is being prepared. Businesses that still rely on paper records for part of their process, transferring information into digital form only periodically, are at genuine risk of falling short of what's actually required, even if their eventual VAT returns are submitted correctly through compliant software.
Common Gaps Worth Checking For
A handful of situations tend to create genuine compliance gaps worth checking your own business against: using more than one software system without a properly maintained digital link between them, manually adjusting figures in a spreadsheet before they're transferred into your VAT return software, or still maintaining certain records on paper that should genuinely be captured digitally from the outset. None of these gaps are necessarily obvious from simply looking at whether your VAT returns are being filed successfully each quarter, since incomplete underlying compliance doesn't always prevent a return from being submitted.
Why This Still Matters, Even Years In
Given how long Making Tax Digital for VAT has now been mandatory, it's easy to assume any early teething problems have long since been resolved. In reality, businesses continue to evolve - adopting new tools, changing how they record certain transactions, bringing on new staff unfamiliar with the specific requirements - and each of these changes carries a risk of quietly introducing a compliance gap that wasn't there when the original system was first set up.
What to Do If You Discover a Gap
If a review does uncover a genuine compliance gap, the sensible approach is to correct it as quickly as possible and document what's been done, rather than leaving it unresolved out of concern about drawing attention to a past shortfall. HMRC's approach to enforcement generally distinguishes between businesses making a genuine, prompt effort to correct an issue once identified and those who simply ignore a known gap, so addressing it properly now protects your position considerably better than hoping it goes unnoticed.
It's worth periodically checking your Making Tax Digital compliance goes beyond simply filing successful VAT returns. We can review your current setup properly. Find out more about Longleys Accounting Services.
A Straightforward Health Check Worth Doing
If it's been some time since your VAT process and software setup were properly reviewed against the full Making Tax Digital requirements, rather than simply checked for whether returns are being filed successfully, it's worth doing so now. This is particularly important if your business has changed the tools or processes it uses since you first became compliant, since a system that met the requirements originally may no longer do so if it's evolved without a proper compliance check along the way.
Getting Genuine Peace of Mind
Beyond avoiding potential penalties, a proper review gives genuine peace of mind that your VAT process is fully compliant, not just superficially working. If you'd like your current Making Tax Digital setup reviewed properly, we're happy to take a look and flag anything that needs attention.