Making Tax Digital for VAT – a step nearer
The pilot scheme for Making Tax Digital (MTD) for VAT was due to start on 3 April and HMRC are adamant that the full version will start on 1 April 2019. With less than a year to go VAT registered businesses need to be sure that their record-keeping and VAT return submissions will meet the new requirements.
The main features of MTD for VAT :
- It applies to businesses (including charities) that must be registered for VAT because their annual Vatable turnover (including zero-rated sales) exceeds the VAT registration threshold (currently £85,000), unless they can claim exemption from MTD.
- Businesses that are VAT registered voluntarily (their turnover is below the registration threshold but they choose to be registered anyway) do not have to join MTD but can do so if they wish. Once in MTD they cannot leave it unless they deregister for VAT.
- After 1 April 2019 a business that goes over the registration threshold must comply with MTD as well as registering for VAT, unless it can claim exemption.
- Exemption from MTD can be claimed if the business is genuinely unable to use digital records or unable to access the internet. This can be on religious, age or disability grounds, or if the internet is unavailable due to the business’s location.
- VAT records must be kept digitally. The digital format must be compliant with HMRC’s software and provide the information HMRC requires in digital form. Software suppliers are working on updates that are MTD compliant and so businesses should keep in contact with their accounting software suppliers to make sure that they are using the correct version. Businesses that use manual or partly manual records should be looking at acquiring suitable software and planning how to manage the change to digital records.
- There is no requirement to keep scanned copies of sales and purchase invoices but the digital records must hold the details of sales and purchases and other transactions and information required by the regulations.
- Spreadsheets are an acceptable form of digital records but the information must be accessible to HMRC’s software, and so specialist software may be required to provide a bridge from the data in the spreadsheet to HMRC’s software. The spreadsheets must contain the all information needed to constitute VAT records.
- VAT returns must be submitted directly to HMRC from the digital records. Businesses in MTD will no longer have access to the HMRC portal that allows them to complete VAT returns online. They must have software that can handle the submission automatically from the digital records. If using spreadsheets for digital record-keeping, submission will have to be made using special “bridging” software.
- Agents will still be able to file on behalf of clients but must have software that can handle the digital filing.
- Adjustments to the figures should be made within the accounting software so that the return produced by the software is suitable for filing.
- If use of “linking” spreadsheets is unavoidable, such as where information for the return is collated from different systems, the data must be transferred automatically from the source software; data must not be re-keyed manually. Bridging software will be required to handle submission of the return to HMRC.
If you are affected by MTD, now is the time to get ready.