Changes to MTD for VAT - what you need to know
HMRC has announced that a small number of VAT registered entities are to be allowed to defer complying with the requirements of Making VAT Digital (MVD) by six months.
Those being permitted to postpone entry into Making VAT Digital until 1 October 2019 are:
- 'Not for profit’ organisations that are not set up as a company,
- VAT divisions and VAT groups
- Public sector entities required to provide additional information on their VAT return - Government departments, NHS Trusts, local authorities
- Public Listed companies (PLCs)
- Traders based overseas
- Those required to make payments on account
- Annual accounting scheme users
HMRC deems all the above to be a VAT-registered business with complex reporting requirements but most of our clients are not in this list and so do not qualify for deferment.
So VAT registered clients who are trading above the £85,000 VAT registration threshold must, from 1 April 2019, submit VAT returns directly via 'functional compatible software'.
You will not be allowed to use HMRC's current online VAT service and key your return figures in directly. It may be that this will still be allowed for a short initial period but HMRC has not provided any details.
If you currently use a spreadsheet to calculate your VAT returns, you'll need to use bridging software to transmit your spreadsheet VAT entries to HMRC.
If you use a spreadsheet to record raw data you will need to use a digital link from that to your accounting software.
Initially only the nine boxes of the VAT return will be submitted digitally but the longer term plan is that your software will 'talk' to HMRC and will then be used to submit all the transactional data as well.
There are some limited filing exemptions and exclusions available to those who are digitally excluded by reason of age, disability, location etc, but unfortunately you can't get exemption on the grounds of being 'digitally inept'.
Digital assessment generally
HMRC have announced they are delaying plans to introduce further digital services for individuals, due to Brexit, and this will halt progress on:
- Simple Assessment
- Real time tax code changes
- Digitising services for inheritance tax, tax advantaged venture capital schemes and PAYE Settlement Agreements (PSAs).
Making Tax Digital and transactions with directors of companies - what to watch out for
Don't forget that once MTD is properly underway HMRC will be able to receive company transactional data almost in real time.
This will affect the bookkeeping efficiency of many limited companies, as some company directors currently do not always vote their dividends on time and some occasionally use the company as a bank account.
It has previously been difficult for HMRC to pick up this kind of issue without opening a formal enquiry into the company but this is likely to change under MTD so it could be worth consider these issues now, at the same time as the transition to MTD for VAT and wherever possible introduce new compliance measures now.
If you are a client of ours already we will be contacting you about your options soon.
Whether you are a client or not, if you need any advice on the move to Making Tax Digital please get in touch.