If you’re a business owner in need of an agent to help you file your MTD for VAT returns, check out our accountant directory of MTD-ready accountants and bookkeepers.
Agent Services Account
An agent services account is what accountants use to access HMRC’s online services for Making Tax Digital for VAT. Agents must register and sign up for an agent services account as outlined here.
An API (Application Programming Interface) is a type of technology which allows for the exchange of data between two software programmes. In terms of Making Tax Digital, an API-enabled spreadsheet is a spreadsheet such as Excel which can connect to an API and combine with accounting software. This allows the user to digitally submit VAT returns to HMRC.
Automated Data Transfer
An Automated Data Transfer is a type of digital link that is accepted by HMRC. For instance, when a VAT calculation spreadsheet is directly linked to accounting software where it can access figures directly.
Cloud-based Accounting Software
Cloud based accounting software or online accounting software, is software that is hosted on a remote server in “the cloud.” This means that you can easily and securely access your financial data any time, anywhere.
Xero is an example of a cloud-based accounting software where you can easily keep digital records and submit your VAT returns directly to HMRC. Sign up for a free 30-day trial to learn more about how Xero can help you stay MTD compliant.
In terms of MTD, designatory data refers to specific business information that you must keep a digital record of. It includes; business name, the address of your principal place of business, your VAT registration number and any VAT accounting schemes that you use.
A digital link is an exchange of data between two pieces of software, such as accounting software and HMRC’s systems. To comply with MTD, you must submit your records directly to HMRC via a digital link rather than copying and pasting the data between the two locations.
Digital Audit Trail
A digital audit trail is a record of every step in a business transaction. This allows HMRC to clearly see the journey from transactional data recorded in your accounting system all the way through to the VAT return numbers you’ve submitted. Examples of these steps could include invoices and receipts from customers or suppliers.
Digitalisation refers to automating processes or business models through software and digital technology. In the context of Making Tax Digital, digitalisation refers to HMRC's goal to shift the UK’s tax system online.
A digital record refers to the digital version of information that you can view on a computer, tablet or phone screen. Under the MTD rules, businesses must store specific information in a digital format on a computer or in the cloud using HMRC-approved software.
MTD’s requirement for digital record keeping means businesses can no longer solely rely on keeping their records in paper form. Examples of digital records that businesses will need to store under MTD include;
- Company name
- VAT registration number
Digital Tax Account (DTA)
A digital tax account (DTA) refers to an online account with HMRC through which you will submit your taxes. This includes both Business Tax Accounts and Personal Tax Accounts.
Domestic Reverse Charge
The VAT domestic reverse charge procedure is an anti-fraud measure designed to combat complex fraud assaults on the UK VAT system.
Flat Rate VAT Scheme
Under the Flat Rate VAT scheme, businesses simply pay a percentage of their total turnover as VAT. The actual amount you pay depends on the type of business, as different industries have different flat VAT rates. This scheme is designed to help simplify the VAT return process for businesses.
Form 64-8 is used to tell HMRC that a business has given authorisation for an agent to act on their behalf. You can find more information on Form 64-8 from HMRC here.
Government Gateway Account
A Government Gateway Account is what business owners use to communicate with HMRC online. An account is created when you first sign up for a government online service.
Her Majesty’s Revenue and Customs is a non-ministerial department of the UK government responsible for the collection of taxes in the UK. Making Tax Digital is managed by HMRC.
The HMRC API (Application Programming Interfaces) allows for the exchange of data between two software programmes. It’s the technology that is used to connect third-party accounting software such as Xero to HMRC systems.
HMRC-recognised MTD Software
HMRC-recognised MTD software, or ‘functional compatible software’, is what businesses must use to comply with MTD. This can be an accounting software, product, or application that can preserve and hold digital records along with providing and receiving information from HMRC through an API.
From April 2022, all VAT-registered businesses will need to keep digital records and submit VAT returns using HMRC-recognised software such as Xero.
MTD is the abbreviation for Making Tax Digital, a government initiative to digitalise the UK tax system.
MTD Bridging Software
Many businesses currently keep their accounting data in spreadsheets and manually enter their VAT returns onto a government portal. Under MTD, this manual entry will no longer be permitted.
Making Tax Digital exemptions are sometimes referred to as being ‘digitally exempt’ or ‘digitally excluded’. Although MTD is compulsory, there are some exemptions. For example, people who are older, have a disability, live in a remote location or businesses run by religious societies where their beliefs prevent them from using computers could also be exempt. You can find out more here.
MTDfB is an abbreviation of Making Tax Digital for Business. You can read more about what MTD means for businesses here.
MTD for ITSA
MTD for ITSA refers to Making Tax Digital for Income Tax Self Assessment. This will apply to the self-employed, sole traders and landlords who have an overall income above £10,000 from the 6th of April 2024. Learn more about what Making Tax Digital for the self-employed means here.
Making Tax Digital for Corporation Tax
MTD for Corporation Tax is the government’s initiative to digitalise how corporation tax is handled by businesses and agents, just like MTD for VAT and MTD for ITSA. The government will provide businesses with an opportunity to take part in a pilot for Making Tax Digital for Corporation Tax and will not mandate its usage before 2026 at the earliest.
Making Tax Digital Deadlines
Making Tax Digital deadlines refer to the key milestones of the roll out of Making Tax Digital. As the next phase of Making Tax Digital approaches, businesses need to make sure they’re clear on the Making Tax Digital deadlines. Check out all the essential MTD deadlines here.
Making Tax Digital (MTD) VAT Phase 2
By April 2022, VAT-registered businesses who are below the VAT threshold (annual taxable turnover under £85,000) will have to comply with MTD for VAT rules.
Multi-Factor Authentication (MFA)
Multi-factor authentication (MFA) is a security procedure that requires you to enter your account using at least two separate factors: something you know (your password) and something you have (your mobile device). This second degree of security is designed to prevent anyone other than you from accessing your account, even if they know your password. MFA is also known as two-factor authentication (sometimes known as 2FA).
OAuth (Open Authorisation)
OAuth (Open Authorisation) is technology through which you can securely grant websites or applications access to other websites without sharing usernames and passwords.
OAuth is used to grant access to accounting software, such as Xero, to information in your HMRC account.
Online Agent Authorisation (OAA)
Online Agent Authorisation (OAA) is the online service that a business must use to allow an agent to manage their tax via their Government Gateway account. You can read more about this here.
Soft Landing Period for MTD
The soft landing period for MTD refers to when HMRC gave businesses extra time to sign up and comply with MTD for VAT without the risk of MTD penalties. This period ended in April 2021.
The Tax Gap is the difference between how much tax is supposed to be paid to the HRMC and the amount that is actually paid. This can happen due to taxes not being filed, taxes owed being underreported or taxes being underpaid. Making Tax Digital aims to close the tax gap by making it easier for people to file their taxes more efficiently and accurately.
Taxable turnover is the total value of taxable supplies made by a business, excluding VAT.
Time of Supply or Tax Point
For VAT purposes, the tax point (or 'time of supply') for a transaction is the day the transaction occurs.
A VAT Account is a record businesses must keep of the VAT they charge and VAT they pay on purchases. The figures in a VAT account are used to complete VAT returns.
VAT Cash Accounting Scheme
A scheme by HMRC which means businesses only have to pay VAT when a customer pays them. This can be beneficial for businesses in terms of cash flow, as they don’t have to pay VAT until customers pay them.
To join the scheme, a businesses’ VAT taxable turnover must be £1.35 million or less. More information on the cash accounting scheme can be found here.
The VAT threshold is £85,000. This means you must register for VAT if your VAT taxable turnover goes over £85,000. You do not need to register for VAT if you earn less than the £85,000 threshold but if you do choose to register, you will need to comply with Making Tax Digital for VAT rules.
VAT Retail Schemes
VAT retail schemes are used to calculate how much VAT a retail business must pay. There are three standard VAT retail schemes in the UK including; Point of Sale Scheme, Apportionment Scheme and Direct Calculation Scheme. Find out more about VAT retail schemes here. Your total daily gross takings if you use a retail scheme is an example of information you must keep digitally under MTD for VAT.
The VAT652 can be used to tell HMRC if you made an error with a VAT claim and have already submitted the claim. Find out more here.
Zero Rated VAT Items
When items are zero-rated, they are still VAT-taxable, but the rate of VAT you must charge your consumers is 0%. Businesses must still account for them in their VAT books and disclose them on VAT returns.