Getting ready for Making Tax Digital (MTD)
From 1 April 2019, businesses with a turnover above the VAT threshold (currently £85,000) have to keep digital records for VAT purposes and provide this information to HMRC using compatible software. The MTD requirement will remain even if turnover subsequently falls below the VAT threshold.
Keeping digital records and making quarterly updates will not be made mandatory for taxes other than VAT before April 2020. Similarly, those businesses below the VAT threshold which have voluntarily registered for VAT can opt in to MTD.
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What software do I need?
HMRC stipulates that businesses within the scope of MTD must use ‘functional compatible software’ to meet the new requirements. The business can use more than one piece of software to keep its digital records, but those separate software programmes must be “digitally linked”.
This means a software program or set of compatible software programs which can connect to HMRC systems via an Application Programming Interface (API). The software functionality must include:
- Keeping records in a digital form
- Preserving digital records in a digital form
- Creating a VAT return from the digital records held in functional compatible software and providing HMRC with this information digitally
- Providing HMRC with VAT data on a voluntary basis
- Receiving information from HMRC via the API platform that the business has complied.
What rules must I follow for the storage of digital records?
Businesses will be required to submit summary totals of their digital records to HMRC at least every three months. The regulations will specify the information a business needs to keep and preserve digitally.
Businesses will also need to maintain digital records for the VAT account (the audit trail between primary accounting records and the VAT return). This should include details of the VAT payable portion and the VAT allowable portion.
The VAT account will also need to detail any adjustments made; such as correcting errors, claiming bad debt relief and annual adjustments for partial exemption and retail schemes.
Only the total for each type of adjustment will be required to be kept digitally and not details of the underlying calculations.
Businesses will need to preserve digital records for up to six years.
How do digital VAT returns differ from the existing regime?
Businesses within the scope of MTD for VAT are required to submit their VAT returns using their compatible software. Information will be pulled from the digital records to populate the VAT return. There will be a minimum of 9 boxes required to complete the return, although HMRC will permit businesses to include supplementary VAT information as part of a VAT return or voluntary update.
Under MTD, VAT returns need to be filed directly through functional compatible software rather than via the Government Gateway with supporting spreadsheets.
How can you help my business?
Whatever the size of your business, MTD will ultimately affect your business and the team at Thomas Coombs will help you to prepare for the new system.
The first requirement is to assess whether you are currently using compatible software that your supplier has confirmed will be updated to cater for MTD.