MTD affects VAT first. For return periods starting on or after 1 April 2019, businesses operating over the VAT threshold (currently £85,000) must keep records digitally, using MTD functional compatible software.
That’s essentially software, or a combination of software and spreadsheets, which can connect to HMRC via an Application Programming Interface. VAT submissions will then be made direct from the digital records. Manual input will not be acceptable, although there will be a ‘soft landing’ period of 12 months where HMRC will not impose penalties if digital links do not exist between software programs used for submission.
It will no longer be possible to submit returns through HMRC’s online portal – except for businesses voluntarily registered for VAT. These businesses will not have to comply unless electing to enter the MTD regime.