From April 2019 VAT registered businesses with a turnover in excess of the VAT registration threshold (currently £85,000) must keep their records digitally, and submit their VAT returns via MTD compatible software.
The option to submit via the HMRC website will no longer be available. In practice this means your first VAT return period beginning on or after 1st April 2019 will need to be submitted using MTD compliant software.
Exceptions to this obligation will be extremely limited, and broadly confined to those who would also be exempt from online filing of VAT returns.
How will it work?
Under Making Tax Digital for VAT, the following information must be kept using ‘functional compatible software’ approved by HM Revenue & Customs:
– The taxable person’s name, address and VAT number, plus any VAT accounting schemes it uses
– The time and value of each supply made and the VAT rate charged
– The time and value of each supply received, plus the amount of input tax to be recovered
– The amount of any adjustment or corrections
– The VAT exclusive value of each of the following outputs: standard rated, reduced rated, zero-rated, exempt or outside the scope.
Approved accounting/book keeping software will be available which will keep all the business books and records in a digital format and be capable of producing a VAT return from these records which can then be submitted to HMRC.
HMRC have confirmed that they will not provide any free software to taxpayers, but low-cost bookkeeping solutions are available commercially.
If books and records are currently kept on spreadsheets HMRC have confirmed that this will be accepted as digital record keeping but businesses will need to use ‘bridging’ software to feed this information into a product that can produce and submit a VAT return.
What are the potential penalties?
HMRC is proposing a 12-month soft-landing period, with no record keeping penalties, to allow time for businesses to update legacy systems.
What should I do now?
It is essential that businesses start to prepare for Making Tax Digital for VAT now. The first steps to consider are:
– Review how you currently collect the information to prepare your VAT Returns.
– Consider whether your current system of record keeping will meet the requirements for MTD for VAT. If all or part of your records are kept on paper you will need to understand what your options are in terms of digitising your records, and you may wish to do this from the start of your next accounting period to avoid changing systems part way through an accounting year.
How can we help?
Tayabali & White can help you review your current record keeping arrangements, and identify the changes that will be necessary to comply with the requirements that MTD will bring.
For further advice and information on how your business can prepare for Making Tax Digital for VAT, please get in touch with your usual Tayabali & White contact.
We will update this space with any new announcements as they happen.
Written by Shane White
Find out more about Shane White