Making Tax digital for VAT

Some of you may remember the HMRC campaign “Tax doesn’t have to be taxing” ... OK, that was about self assessment tax returns but VAT is still a tax and Making Tax Digital (MTD) for VAT is definitely not the most easy to follow and understand.  HMRC isn’t known for it’s use of plain language after all, and information was slow in coming about MTD too which never helps.

Although the legislation was introduced a while ago it has been pushed back and amended several times, but MTD for VAT will (as it stands!) be effective from 1 April 2019.  This might sound ages away but the reality is that for some VAT registered businesses the September VAT quarter end is less than 2 weeks away and then they have just 2 more VAT returns before they need to comply .. when it’s put like that it is scarily close.

So what is it and who does it impact?

All UK businesses that are VAT registered and have taxable turnover above the VAT threshold (currently £85k) will be required to keep their records digitally and submit their VAT returns to HMRC using MTD compliant software. 

It’s worth noting, that if you were over the threshold and had to comply with MTD for VAT and then fall below the threshold, you will still need to comply with MTD for VAT.

If a business is voluntarily registered for VAT (so one below the VAT threshold that is registered for varying reasons) would not need to comply with MTD for VAT but would need to keep an eye on their taxable turnover as if it exceeded the threshold it would then need to comply, and it is worth noting that you can voluntarily opt in.

If a business isn’t registered for VAT but might be soon, then they need to be thinking about being prepared.

If a business isn’t registered for VAT and isn’t likely to exceed the threshold then they don’t need to worry about MTD .. yet.

It impacts me, what do I do?

If your business is going to be impacted by MTD for VAT then what you need to do depends on whether you already use accounting software or if you are spreadsheet or paper based.

If you use accounting software and submit your VAT returns to HMRC via the software then you are probably OK and probably going to be compliant – check with your software provider to see where they are at with the ensuring that they will be MTD compliant and also if there will be any additional costs for you (this is referred to as “functionally compliant software” by HMRC .. snappy, huh?)

If you keep your records on spreadsheet then you will need to review whether these remain appropriate.  At present, HMRC have said spreadsheets will be acceptable but that they need to calculate the VAT return and that you will need either bridging software that will talk to HMRC or to be using an API enabled spreadsheet.

What are the records needed?

Digital record keeping means that the following will all be recorded digitally for the business:

  •         Name

  •         Address

  •         VAT number

  •         VAT scheme

  •         Information about supplies made and received, ie date, value, VAT rate etc

And like now, digital records need to be maintained for six years.

What does “functionally compliant software” actually mean?

Functionally compliant software needs to:

  •         Keep and preserve records in a digital form

  •        Create and provide VAT returns to HMRC from these digital records

  •         Be capable of receiving information from HMRC via the API platform

I have an accountant who does my VAT returns for me

Fantastic – talk to them.  It will depend on what records you provide them and the work that they need to do as to if you will be OK or not.  If you are on the Flat Rate Scheme for example and you are just providing invoices to them then chances are they are using these to submit a VAT return direct to HMRC which won’t be MTD for VAT compliant and additional steps and procedures will be required, which will of course involve additional costs.

This sounds like a pain in the ... are there any exemptions?

As said above, if you are voluntarily registered then you don’t need to comply (yet) but it’s probably worth looking into it if you will be close to the threshold.

The only true exemptions are religious reasons (ie where your beliefs prevent the use of technology), insolvency or it is not reasonably practicable to comply (ie age, disability, remoteness of location).

When does this start?

MTD for VAT is applicable for accounting periods beginning on or after 1 April 2019 so depending on your VAT quarter end this could be:

  •         VAT return for the period 1 April 2019 to 30 June 2019

  •         VAT return for the period 1 May 2019 to 31 July 2019

  •         VAT return for the period 1 June 2019 to 31 August 2019

And by 1 September everyone will be in.

What’s next for MTD?

HMRC are striving to be the most digitally advanced tax administration in the world! There is a “soft” deadline / target of April 2020 for MTD for Income Tax and Corporation Tax.  This may well be pushed back.

Brexit ... will that impact this?

Brexit negotiations and the potential impact of any deal or no deal could impact this, but at the moment it’s all systems go .. so it’s best to work on the basis that this will happen.

Lastly ...

If you are a client – don’t panic!! Over the next few weeks I will be getting in touch to let you know what this all means for you and your own specific circumstances.


GeneralRachael Savage