Most VAT registered businesses with an annual turnover above £85,000 will have to comply with MTD requirements from 1 April 2019. Please see my blog ‘Making Tax Digital – where are we now?’ If you are not sure whether this applies to you.
There are two main requirements for MTD:
- Digital record keeping
- Digital submission of VAT Returns
Submission of VAT Returns
You must submit your VAT Return information digitally. If you currently submit Returns online using HMRC’s VAT portal, you won’t be able to do this anymore.
You will either have to use MTD compliant software, such as Xero, Quickbooks or SAGE (there are many more!) or a spreadsheet with Bridging Software to submit the Return information online.
The key is that whatever software you use, there can be no copying and pasting or manual transfer from one place to another. It must be a fully automatic process.
Initially, the only information provided to HMRC will be the same as is already included in the 9 box VAT Returns. No information will be provided about individual transactions and HMRC cannot interrogate your software.
HMRC have a list of compatible software providers at this link https://www.gov.uk/guidance/software-for-sending-income-tax-updates so you can check whether your software provider is ready to cope with the new requirements.
Digital record keeping
The law already requires that specific supporting documentation must be retained by your business. MTD requires that some of these must be kept digitally; the remaining records do not have to be kept digitally, but they must still be kept.
For sales and supplies, you must keep a line by line record for each transaction of:
- The taxpoint or date of the supply
- The net (before VAT) value of the supply
- The rate of VAT charged
For purchases and expenses, you must keep a line by line record for each transaction of:
- The taxpoint
- The net value of the supply
- The amount of input VAT that you can reclaim
If you are using compatible software, all this should be taken care of for you by normal data entry processes.
There are special rules which apply for flat rate schemes, retail schemes, margin schemes and so on.
When do I start?
You need to be compliant from the start of the first VAT period which starts on or after 1 April 2019.
If you file for ‘normal’ quarters – March, June, September, December – you will need to keep digital records from 1 April 2019 and file your first return for the quarter ended 30 June 2019 by 7 August 2019.
If you file for different quarters – e.g. May, August, November, February – you will need to keep digital records from 1 June 2019 and file your first return for the quarter ended 31 August 2019 by 7 October 2019.
In summary
If you are already using accounting software to prepare your VAT Returns, check whether this will be compatible with MTD requirements. Contact the software provider or check HMRC’s list.
If you are using spreadsheets to record transactions make sure that the minimum digital requirements are met within the spreadsheet. Either the spreadsheet or bridging software must be able to automatically calculate the figures needed for the 9 box VAT Return and must be capable of submitting this information to HMRC without any manual re-entry.
If you are not yet maintaining any kind of digital records, please speak to your accountant as soon as you can about preparing for Making Tax Digital.
Please contact me if you have any questions or concerns, I’m happy to help.
