Making Tax Digital for VAT

Over the coming years, the government is committed to phasing in its Making Tax Digital plans, which will see most taxpayers move onto a fully digital tax system. 

The first stage of this process is the introduction of Making Tax Digital for VAT, which goes live on 1st April 2019.  

Only businesses with a turnover above the VAT threshold (currently £85,000) will initially be required to use Making Tax Digital for VAT, so any business that is registered voluntarily and is trading below this threshold does not have to join in April 2019.

​VAT returns

For any business that falls within the scope of the new rules they are required to submit their VAT returns using software compatible with the Making Tax Digital for VAT regulations.

Information must be extracted from digital records in order to populate the VAT return.

There are no changes to any statutory VAT return or payment dates. 

Digital records

Businesses must use 'functional compatible software' to meet the new requirements of MTD for VAT.

All VAT returns will be calculated and submitted to HMRC via an Application Programme Interface (API).

Returns can be submitted using either fully integrated software, bridging software or API-enabled sheets (generally spreadsheets with electronically linked data that cannot be over-typed.

The software chosen must be able to:

  • keep records in a digital form  
  • preserve digital records in a digital form 
  • create a return from the digital records and provide this information to HMRC digitally    
  • provide HMRC with VAT data on a voluntary basis (no we're not sure what this means yet either!)    
  • be able to receive information from HMRC via the API platform that the business has compiled  


Partial exemption problems

HMRC will allow adjustments for partial exemptions to be calculated separately, outside of the digital records, and for these to be transferred in either digitally or manually. However, the final transfer of information to HMRC will still have to be done digitally.

Penalties

From April 2019, when MTD for VAT comes into effect,  HMRC have indicated that there will be a one-year ‘soft landing’ period, when penalties for record keeping will not apply.

Record keeping

Records kept digitally must include such information as:

  • the name of the business, its address, VAT registration number and a record of any VAT accounting schemes used
  • the VAT account (as to be outlined later)  
  • information in regard to supplies made and received   
  • the totals of any adjustments 
  • a record of Daily Gross Takings if the business is using a retail scheme.

Digital records must be maintained for the VAT account (and the audit trail between primary accounting records and the VAT return). The records should include details of both the VAT payable portion and the VAT allowable portion.

Businesses will be required to keep digital records in functional compatible software for up to six years.

Exemptions

Only a small handful of businesses will be exempt. 


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