12 March 2018

Making tax digital

From April 2019, VAT registered businesses will be required to maintain digital records and submit their VAT information digitally

From April 2019, all VAT registered businesses with turnover above the VAT registration threshold (currently £85,000) will be required to maintain digital records and will need to send their VAT information to HMRC using functional compatible software.

Making Tax Digital is the government’s plan to improve the efficiency, effectiveness and ease of compliance for businesses to help them stay on top of their day-today accounts.  The plan is to provide a more modern, digital service which will help businesses get their tax right, with technology making it easier for them to do so.

HMRC’s vision will fundamentally change the administration of the UK tax system and will affect all VAT registered businesses with turnover above £85,000 - including unincorporated businesses, companies, LLPs and charities.  However HMRC’s online portal (Government Gateway system) will still remain available to all other VAT registered businesses that submit VAT returns but have taxable turnover below the VAT threshold. Businesses with turnover below the VAT threshold can voluntarily use the new digital system.

One of the main changes and concerns with MTD, surrounds the way by which VAT returns will be submitted.  Despite 99% of current VAT returns being submitted online, only 12% of these are submitted via 3rd party software. This means that the remaining 87% of VAT returns submitted online, are presumably submitted manually via HMRC’s Government Gateway. HMRC will no longer allow businesses with turnover above £85,000 to submit their VAT returns via their current HMRC online portal.

MTD for VAT will apply to VAT return periods commencing on or after 1 April 2019 and businesses will be required to calculate their VAT returns via 'functional compatible software' packages and submit it to HMRC via an Application Programme Interface or 'API' for short. The software must also be able to keep all records in digital form however businesses will still be permitted to use spreadsheets subject to the condition that they are combined with the recommended software. HMRC state that all digital records do not have to be in one piece of software however – if there is a digital link between the pieces of software, records can be kept in a range of compatible digital formats.

HMRC have stated that 'functional compatible software' is a software programme that must be able to:

  • Record and preserve electronic records in an electronic form
  • Provide to HMRC information and returns from the electronic records in an electronic form using the API platform
  • Receive information from HMRC

In addition to the above requirements, the guidance also states that businesses will be required to keep digital records of the following data:

  • Your business name
  • The address of your principal place of business
  • Your VAT registration number
  • A record of any VAT accounting schemes that you use

MTD is much more extensive than simply keeping records digitally and updating HMRC electronically from those records.

Please contact us to speak with one of our specialist VAT consultants should you have questions around MTD.

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