Making Tax Digital for VAT

There have been quite some discussions surrounding the topic of Making Tax Digital (MTD), but HMRC's vision to digitalise the UK tax system is now well underway. Businesses and landlords will be required to use software to maintain their records and to update HMRC quarterly, starting with VAT.

Timeline for your diaries!

1. MTD for VAT launches on 1^st April 2019.
2. All other taxes (income tax & corporation tax) will follow quickly behind, earmarked for April 2020

All registered businesses with turnover above the VAT threshold will be required to maintain digital records and will need to send their VAT information to HMRC using third party commercial software. HMRC's online portal will remain available to all other businesses that complete a VAT return but have turnover below the VAT threshold.

Will this introduction affect my business?

• Yes, if your business is VAT registered (this includes LLP's, companies & charities)
• If you are above the £85,000 VAT threshold
• If you're below the threshold you can choose whether you want to opt-in if you wish.

You will be required to keep all your records digitally and submit your VAT to HMRC using MTD-compatible software (such as Xero, Twinfield etc.). If you would like us to, we can review and assess which software would best fit your needs.

What will be the advantages of using software for MTD?

• You will be able to drip feed your paperwork quarterly rather than at year-end all in one go!
• This naturally mean less paperwork as the software will automatically record your business's cash flow.
• No nasty surprises - as every 3 months, you will know what your tax liability is so you can budget ahead to make sure any costs are covered.
• Improve your strategic business decisions knowing what your projected tax figures will be.

What if I am already using a software package?

At the moment, we understand there will be no free software for MTD for VAT. HMRC is working closely with software providers to ensure a range of suitable products will be available.

If you have software in place, again, we can provide you with any advice, so that you can weigh up the pros and cons. Ultimately, we want to make sure you are, not only MTD VAT ready, but we will be able to continue looking after your Bookkeeping requirements as well!

As a helpful guide, the software will have to be able to do the following:

• Keep records in a digital form.
• Preserve digital records in a digital form.
• Create a VAT return from the digital records.
• Provide HMRC with VAT data on a voluntary basis.
• Receive information from HMRC via the API (application programme interfaces) platform. This will allow HMRC to send 'nudges' to the business/agent.

HMRC recently published a list of 150 software companies that are now (or will be) 'MTD ready' in time for 1^st April 2019. Check to see if yours is here.

For more tips & advice on this subject, please visit here.

We’ve also put together some additional FAQ’s which we hope you find useful. If you have any questions you would like answered, please let us know.

We would suggest you start using the software at the beginning of a new financial year. Please talk to us for advice on when would be best for you. Certainly, the earlier you can start, the easier it will be to plan and manage.

Please do give us a call on 0208 861 7575 if you would like to talk about the possible implications MTD VAT may have on your business, or if a FREE assessment of your software would be beneficial.

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Making Tax Digital (MTD) for VAT - Frequently asked questions

Here are some questions that you’re currently asking us about MTD.

What is a digital record?

Keeping your records digitally for Making Tax Digital (MTD) purposes means that you must store a digital copy of the transactions which make up the figures on your VAT return. This needs to kept in functional, compatible software. By that we mean software or a set of software programs that will help you do the following:

• Record and file digital records
• Send the data to HMRC through an Application Programming Interface (API)
• Receive information from HMRC via the API.

Can I still use spreadsheets

Do you use spreadsheets? If so, we would suggest you research the software available. If you do switch to software, work out the best time to do so.

You will not be required to keep any additional business records because of MTD. However, business records must be kept digitally to be compliant. Make sure you save/file all digital records so that you don’t accidentally delete or type over in error.

HMRC will consider spreadsheets an acceptable form of recording information, but bridging software will be required to connect to HMRC’s systems via an Application Programming Interface (API). HMRC are not issuing a standard format or API, meaning a third party would be required to develop this.

Are there any exemptions?

As mentioned previously, there will be an automatic exemption for businesses which are registered for VAT that have turnover below the threshold. In addition, you will not have to register for MTD where HMRC is satisfied that:

• If you are unable to use digital tools to keep your business records or submit your returns for reasons of age, religion, disability or if you live in a remote location.

If you are in any doubt, please do double check with HMRC that you meet exemption criteria, as you could be liable for a penalty otherwise.

I'm on a complex scheme, how do I submit my records?

Business records will need to be kept digitally to be compliant. If you use spreadsheets, again you must be able to submit the required data digitally.