The rules in brief
Making Tax Digital for VAT applies to every VAT-registered business. You must keep your VAT records digitally and send your VAT returns to HMRC through compatible software. Click Dealer can submit VAT returns under Making Tax Digital, and so can Xero – which is where the confusion starts.
Only one system should file
Whichever system sends the return must hold every transaction for the period, not just some of them. For most dealers that matters, because the figures are split:
- Click Dealer holds vehicle sales, purchases and part-exchanges;
- Xero holds the bank, overheads, preparation costs, rent, wages and other suppliers.
A return filed from Click Dealer alone can leave out VAT on overheads. A return filed from Xero before the Click Dealer figures are imported can leave out vehicle sales. And if both systems are connected to HMRC, it is possible to file the same quarter twice, or file from one system while the other is left showing the return as outstanding.
The three ways it usually works
| Approach | When it suits | Watch out for |
|---|---|---|
| File from Xero, after importing Click Dealer | Click Dealer figures are imported into Xero each month and reconciled. | The import must be complete before the return is prepared. |
| File from Click Dealer | All of the business's VAT transactions are held in Click Dealer. | Overheads and other costs kept in Xero must also be in Click Dealer, or the return is incomplete. |
| Your accountant files as agent | You want the return checked and sent by us. | We need the reconciled figures, and your approval, before the deadline. |
Where Click Dealer figures are imported into Xero, filing from Xero after the month-end checks keeps everything in one place. Whichever route you choose, write it down, so everyone in the business knows which system files.
Moving figures between systems: digital links
HMRC requires a digital link wherever figures move from one piece of software to another. Its guidance (VAT Notice 700/22, section 3.2.1) accepts CSV import and export and the download and upload of files. It does not accept re-typing figures, or copy and paste. A monthly export from Click Dealer imported into Xero is fine; typing Click Dealer's totals into Xero is not.
Before any return is filed
- Every vehicle sale for the quarter is in the filing systemAgreed to Click Dealer, car by car.
- Margin scheme VAT is checkedOne-sixth of each positive margin, losses at nil, and no VAT-qualifying cars put through the margin scheme. See our margin scheme guide.
- Purchase VAT is supportedVAT reclaimed on overheads and preparation costs is backed by VAT invoices.
- The bank is reconciledUp to the last day of the quarter.
- The return is approved, then filed onceFrom the agreed system, by the deadline.
If a return is late
Late VAT returns earn penalty points; for quarterly returns, reaching four points brings a £200 penalty, and each further late return another £200. Late payment is charged separately: 3% of the VAT still unpaid at day 15, a further 3% of the amount unpaid at day 30, then a daily penalty at 10% a year from day 31, plus interest. A settled month-end routine is the best protection.
How we help
We agree with you which system files, set up the Click Dealer to Xero routine so it meets the digital link rules, and check each return before it goes. We can file as your agent or review a return you file yourself.
Related: month-end reconciliation checklist and moving from Sage to Xero.
This guide is a summary, not a full statement of the rules. Sources: VAT Notice 700/22: Making Tax Digital for VAT and How late payment penalties work if you pay VAT late (GOV.UK).