VAT registered businesses not already 'Making Tax Digital', now need to be!

VAT registered businesses with a taxable turnover above the VAT registration threshold currently have to keep certain digital records and must file their VAT returns directly from these digital systems. This is referred to as Making Tax Digital for VAT or MTD.

The digital record system can be a software programme on a computer or an app on a tablet or smartphone. Whichever system is used it must record certain information. This includes, in relation to income, the date supplies were made, their value and the rate of VAT charged. Similarly for expenses the date of the supply, the value and the amount of VAT to be reclaimed has to be recorded.

There are specific MTD requirements for certain types of businesses including retailers or businesses using Margin Schemes. MTD does not remove the requirement to keep and preserve records specific to those schemes but it does specify which records must be kept digitally.

If the information required by MTD is kept in different software systems or programmes the transfer of data into the system used to calculate and submit the VAT return values has to be made using a digital link and not manually.

Some records can be kept outside of the MTD software and adjustments made manually, including Partial Exemption and Retail Scheme annual adjustments.

Businesses required to use MTD have to submit their VAT returns to HMRC directly from their software and not enter the figures manually into the HMRC system. At present HMRC only receives the values of the nine boxes of a VAT return, not the detail of how these have been calculated.

From April 2022 MTD for VAT is being extended to all VAT registered businesses.

The change will apply from the first VAT return period beginning on or after 1 April 2022.

HMRC may grant an exemption if they are satisfied MTD is not practical, the examples they give are due to age, disability or location or it is run entirely by practising members of a religious society (or order) whose beliefs are incompatible with using electronic communications or keeping electronic records.

Businesses that are not MTD compliant need to consider how to resolve this as soon as possible as time is running out. Those businesses with a 31 March stagger date will have filed their last return outside of MTD so if this is you and you haven’t switched to an MTD solution you now have until 7 August (the final date by which your 30 June 2022 return has to be filed) to get this sorted.

Those registered for VAT on a voluntary basis could deregister although this may not be without a cost. In some circumstances, deregistering will trigger a VAT charge on stocks and assets that are on hand when the VAT registration is cancelled. In agricultural businesses which tend to own relatively high-value machinery, an exit charge is quite likely. The implications of deregistering do need to be carefully considered.

For businesses that wish to, or must remain VAT registered and who are not eligible for exemption there are a number of options. Most off the shelf accounting packages are MTD compliant.

If you would like Albert Goodman to review your processes speak to your normal contact at Albert Goodman or email richard.taylor@albertgoodman.co.uk, we would be happy to assist.