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Making Tax Digital for VAT is now live in Xero

Posted 4 years ago in Advisors by Damon Anderson
Posted by Damon Anderson
Updated 7th October 2020

We’re thrilled to announce Xero’s Making Tax Digital (MTD) for VAT solution is live in Xero. It’s available in all Xero plans that support VAT at no extra cost.

Under MTD for VAT, VAT registered businesses with a turnover above the £85k threshold will have to keep digital records and file their VAT returns using compatible software.

In July 2020, the government announced that MTD will be compulsory for all VAT registered businesses, not just those that are above the VAT threshold, from April 2022.

Our solution ensures businesses are fully compliant with the new HMRC rule. 

Key features

Making Tax Digital doesn’t have to be overwhelming – we’ve been working closely with HMRC for over three years to ensure all businesses are supported through this transition.

After conducting several pilots and gathering feedback from accountants and businesses, we’ve built a whole new VAT process that ensures you and your clients can fulfil your MTD obligations.

New features include a VAT overview, extra reports, the ability to post VAT adjustments and submit in real-time to HMRC.

How to activate the solution in Xero

Customers must sign up to MTD for VAT with HMRC – it’s not possible to submit MTD VAT returns without doing this first.

Next, you’ll be asked if you wish to activate the MTD VAT return solution in Xero (this message will appear when you open the VAT return section of Xero). Remember if the MTD for VAT solution has already been enabled by another user, this will automatically display when viewing the VAT return.

Those that have signed up with HMRC need to enable the MTD VAT return feature in Xero. Those that haven’t should continue to file non MTD VAT returns.

If you and your clients have been participating in our beta programme, you don’t need to do anything – you’re already set up.


Next steps

If you’re part of an accountancy practice that manages clients above the VAT threshold, and those clients are not yet on MTD compatible software, we recommend you start migrating them now.

If you have clients using Sage or Quickbooks desktop, you can easily convert them for free using Movemybooks.

Bridging software is now live in Xero 

For those using bespoke software that isn’t compatible with MTD for VAT, Xero now includes a bridging software feature as part of our MTD VAT Return solution.

The feature is available in all Xero plans that support VAT at no extra cost (please note that the bridging software solution is not available for those on the Flat Rate Scheme) and will allow businesses to continue using spreadsheets to calculate VAT and keep digital records. 

The solution is live for all Xero partners – practice staff users will have access to this automatically, whilst business users can request access from our customer experience team. To learn more about the bridging software in Xero and more, check out our page.

Preventing fraud for you and your clients

When your Xero account is connected to HMRC’s MTD for VAT system, Xero will securely connect and submit data to HMRC. In addition, HMRC legislation requires Xero and other software vendors to submit additional information to HMRC for fraud and security prevention purposes – like browser data (such as IP addresses and other metadata). This is referred to as transaction monitoring. To learn more, take a look at HMRC’s transaction monitoring notice.

And rest assured, we’re not changing any of our existing real-time security monitoring. Read more about Xero’s security benefits.

If you still have questions on Making Tax Digital, contact your Xero Account Manager or email partnerteam@xero.com. If you’re a small business, please contact your advisor or touch base with our support team via Xero Central.  


James Flavell
March 23, 2019 at 4.02 am

Can you update on where you are with VAT groups? Thanks.

Damon Anderson in reply to James Flavell
April 3, 2019 at 6.50 am

Hi James, thanks for the question. Firstly, HMRC have deferred the Making Tax Digital start date for businesses with complex needs such as VAT Groups until October 2019. Customers with VAT Groups, who wish to maintain digital links for MTD, can use our bridging solution. This means a customer can combine groups together in a spreadsheet, connect this back into Xero and file a consolidated return. Bridging is currently available for Xero partners (accountants or bookkeepers) and will be extend to all customers on a VAT-enabled product soon. We have some great ideas on how we can make the product experience even better for handling VAT Groups and will let customers know as soon as we have added further changes. I hope this helps!

Susie Dawson
March 23, 2019 at 5.25 am

we’ve been submitting VAT returns online through Xero for about 3 years – I’m a bit confused by your “we’re thrilled to launch…” pitch. Am I missing something?

Ashleigh Lambert in reply to Susie Dawson
March 29, 2019 at 11.05 pm

Hi Susie,

Sorry to cause any confusion. With HMRC’s new Making Tax Digital (MTD) scheme, businesses above the £85k VAT threshold are required to keep digital VAT business records and send returns using MTD compatible software from 1 April 2019. If this is your business, you’ll need to sign up for Making Tax Digital for VAT with HMRC and then you can continue submitting VAT returns with Xero. Please see here for the guidance from HMRC: https://www.gov.uk/guidance/sign-up-for-making-tax-digital-for-vat

Because of this change from HMRC, we have rebuilt Xero’s VAT return solution so it is compatible with MTD – and we’ve made lots of other improvements along the way as well. I hope that helps to answer your question. Please do get in touch with our support team if you have any trouble getting set up via Xero Central here: https://central.xero.com/s/article/File-a-VAT-Return-with-HMRC

P.S. If your business is under the VAT threshold, you can continue submitting VAT returns just as you did before 🙂

Charlotte Hobbs
April 4, 2019 at 2.13 am

I’ve just tried to authorise the software product from within Xero…it took me to HMRC, where I logged on to my new account, and clicked on the ‘authorise Xero’ button. Now from within Xero it says:
Needs Attention
Unable to connect to HMRC
HMRC will confirm connection by email when access has been granted. Please come back later and try again. If after 72 hours you are still not connected contact HMRC.

HMRC contact details:

Telephone: 0300 200 3701Outside UK: +44 2920 501 261
Textphone: 0300 200 3719Website: http://www.hmrc.gov.uk

Is this standard, and does it take a while for this to process?



Damon Anderson in reply to Charlotte Hobbs
April 4, 2019 at 6.25 am

Hi Charlotte,

Unfortunately it can sometimes take some time (up to 72 hours) to be granted access. HMRC recommend customers only attempt to submit a VAT return once they have received the email confirming the customer is now in MTD. If, after 72 hours, you are still receiving an error, you should report it to HMRC. I hope this helps.

Thanks, Damon

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