If you run a VAT-registered business, Making Tax Digital is not optional, and how your systems handle it is worth understanding before you change them. This article explains what MTD requires, how an ERP such as Odoo handles it, and what to check when you switch.
What Making Tax Digital for VAT requires
Since April 2022, all VAT-registered businesses in the UK must:
- Keep VAT records digitally.
- Submit VAT returns through software that connects to HMRC's MTD system.
- Maintain digital links between the software that holds the records and the software that submits the return, with no manual retyping.
Most businesses meet this through their accounting software. An ERP with proper UK localisation meets it in the same way, with the added benefit that the VAT figures come from the same transactions that run the rest of the business.
How an ERP submits a VAT return
In a system like Odoo, every sales invoice, supplier bill and expense carries a VAT rate. At the end of the period, the VAT report is simply a summary of those transactions in the nine boxes of the return. The system connects to HMRC, retrieves the open obligation (the period HMRC expects), and submits the figures. The receipt from HMRC is stored against the return.
Nothing is retyped, which is both the point of MTD and the reason the numbers are more reliable than a return built from a spreadsheet.
What to check before you switch
1. HMRC recognition. Confirm the software appears on HMRC's list of MTD-compatible software for VAT. Odoo does; not every ERP with a UK presence does.
2. VAT setup. Standard, reduced, zero, exempt and outside-the-scope rates need to be configured correctly, along with reverse charge for construction services or EU purchases if they apply to you. Get your accountant to review the configuration before your first return.
3. Digital links across integrations. If sales come from an online store and are pushed into the ERP by an integration, that is a digital link. If someone exports a report and types totals into another system, it is not.
4. Timing. Switch systems at the start of a VAT quarter so one full return comes from the new system, and the last return from the old one is closed cleanly. Our ERP implementation steps explain why go-live dates are chosen this way.
5. Access for your accountant. Give them a user in the system so they can review the return before submission.
Keeping accounts software alongside an ERP
Some businesses run operations in an ERP and keep Xero, Sage or QuickBooks for accounts and VAT. That works, provided the link between the two is a proper integration, not manual entry. Our guide to ERP vs accounting software covers when it makes sense to keep both.
Beyond VAT
MTD is expanding to Income Tax Self Assessment for sole traders and landlords over the coming years, and corporation tax is expected to follow eventually. The direction is clear: HMRC wants figures to come straight from digital records. A business that already runs on one system with clean transaction data is well placed for whatever comes next.
A note of caution
This article is general information, not tax advice. VAT schemes, thresholds and MTD rules change, and your accountant should confirm how they apply to you. What we can help with is making sure the system produces the right figures in the first place. Read about our ERP service or request a quote.
Key takeaways
- Making Tax Digital for VAT requires digital records and VAT returns submitted through compatible software. An ERP with UK localisation does this.
- The VAT return is built from transactions already in the system, so there is nothing to retype.
- Check that the system is HMRC-recognised for MTD, that your VAT setup is correct, and that any integrations keep a digital link.
- Plan the switch of systems at a VAT quarter boundary.
Frequently asked questions
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