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Making Tax Digital for VAT

Created: June 2018

The first stage of the Government’s Making Tax Digital (MTD) programme is being introduced in April 2019.

This heralds a significant change to the way that tax information will be filed and you will need to change how you maintain your business records.

How will you be affected?

From April 2019, only VAT registered businesses with taxable turnover above the VAT registration threshold (currently £85,000) will be legally obliged to keep their records in a digital format (for VAT purposes only) and then submit their VAT information to HMRC digitally using specialist software.

This applies to sole traders, partnerships limited companies, charities and any other VAT registered entity whether UK resident or established overseas.

If you have voluntarily registered for VAT and your turnover is below the registration threshold you are not required to participate in MTD for VAT (although you can do so voluntarily).

If a business has already exceeded the turnover threshold, but later falls below the VAT registration threshold, it is still required to comply with the MTD for VAT rules. These requirements will continue until you deregister from VAT.

You already file VAT returns quarterly, so what’s the difference?

The key difference is that the backing records for VAT returns must be kept electronically on compatible software and then submitted electronically to HMRC every quarter.

The VAT return will be populated with information from the underlying digital bookkeeping records.  The VAT return will look the same as it always has but there will be more underlying data on categories of expenditure.

Submission dates and payment dates of VAT will not change.

Exemptions from MTD

There are only a few, very limited exemptions for MTD on religious or exceptional grounds, and in the event of insolvency.

Your records for MTD VAT filings

You must use some form of digital software package for bookkeeping or accounting purposes to connect your own record-keeping to HMRC’s systems.

From April 2019, businesses that fall within the new MTD regime will no longer be able to keep their VAT records in paper format. They must be kept and maintained digitally.

Current guidance from HMRC suggests that they will allow records to continue to be maintained on spreadsheets, provided there is some sort of link between the spreadsheet and digital software which is then used to submit the information to HMRC.

Holding the records on a spreadsheet alone will not be sufficient for MTD purposes; if this is your chosen method you will need to make significant changes to your current processes.

Penalties for non-compliance and errors

HMRC will have the power to impose penalties for failing to maintain records in a digital format and the penalty regime will largely correspond to the existing regime for failing to keep adequate records for VAT purposes.

If errors are made on a quarterly VAT return, the ability make corrections on the next VAT return (depending on the size of the error) exists.

MTD: the next stage

HMRC has categorically stated that it will not widen the scope of MTD for business beyond VAT before the system has been shown to work well.

HMRC’s original proposals were that from April 2020 all businesses, including property rental businesses and regardless of their turnover, would be required to keep their records in a digital format and to make quarterly filings to HMRC. HMRC has now announced an indefinite delay to this extension to MTD, due to moving staff to deal with Brexit-related pressures. However, the intention remains for this to be implemented at some stage in the future.

How can we help you?

If we already assist you with filing your quarterly VAT returns, we will be in touch in due course to review any changes that need to be made to your record-keeping.

If you do your own VAT filing, you will need to consider whether your current arrangements will satisfy MTD requirements.  We would be happy to help you ensure that your business is MTD compliant – simply contact us to discuss further.