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MTD for VAT

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If you run a VAT-registered business with a taxable turnover above the VAT registration threshold (currently £85,000) you are required to keep digital VAT business records and send returns using Making Tax Digital (MTD)-compatible software for VAT periods starting on or after 1 April 2019.

Businesses with a taxable turnover below the VAT threshold can also sign up for MTD for VAT voluntarily.

Following the VAT roll-out the next phases will include MTD for income tax (for the self -employed and those with income from property) and MTD for corporation tax but not before April 2020 at the earliest.

The MTDfVAT pilot opened on 16 October 2018 for around half a million businesses whose affairs are up to date and straightforward, and will extend to most other business types over the coming months.

A small group of customers with more complex VAT affairs are being given a further 6 months to prepare and have until 1 October 2019 before they need to comply. This will ensure there is sufficient time for testing the service with them in the pilot before they are required to join. These include: trusts, ‘not for profit’ organisations that are not set up as a company, VAT divisions, VAT groups, those public sector entities required to provide additional information on their VAT return (such as government departments and NHS Trusts), local authorities, public corporations, traders based overseas, those required to make payments on account and annual accounting scheme users.

The list of compatible software continues to grow and HMRC is working with more than 150 software suppliers who have said they’ll provide software for Making Tax Digital for VAT in time for April 2019. There are separate lists of products that have been fully tested and those that are still in development.

Maintaining paper records will cease to meet the legal requirements in tax legislation.

Digital records can be maintained in more than one program or software product. The use of spreadsheets, either to record individual transactions or as part of a suite of software and spreadsheets is permitted. However, the spreadsheet will need to be either API enabled or used in combination with an MTD compatible software product so that data can be sent to and received from HMRC systems; an existing spreadsheet alone is not a free way to comply with the MTD for VAT requirements.

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    1 April 2019

    All VAT registered businesses and organisations with taxable turnover above the VAT threshold of £85,000 must maintain their accounting records digitally and submit their VAT returns to HMRC using a compatible software product that can access HMRC’s API (Application Program Interfaces) platform. Exceptions – see Oct 2019.

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    1 October 2019

    Exceptions from April 2019 including trusts, ‘not for profit’ organisations that are not set up as a company, VAT divisions, VAT groups, those public sector entities required to provide additional information on their VAT return (such as government departments and NHS Trusts), local authorities, public corporations, traders based overseas, those required to make payments on account and annual accounting scheme users.

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    1 April 2020

    The Government has given an undertaking that MTD (electronic record keeping and quarterly reporting) will not be made mandatory for other taxes (i.e. income tax and corporation tax) until the system is working well and not until April 2021 at the earliest, this has been extended from the original April 2020 date.

How can we help you?

Our award-winning team can help you get started if you are not already keeping your accounts on compatible software, or we can do your bookkeeping for you. We can support you using Xero, QBO, Sage , FreeAgent or any other cloud package which suits your needs. We can also help with the and prepare your in year management information and year-end figures for you.

We can help you get the most from your system.

We have been actively involved in the consultation process throughout and are therefore well placed to guide you through the MTD requirements.

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April 2018 (19)

What you need to know.

Making Tax Digital (“MTD”) is H M Revenue & Customs (“HMRC”) drive to close the “Tax Gap” and to make the UK “the most digitally advanced tax authority in the world”. It will mean significant changes to how and when we deal with our tax affairs.

The first businesses affected by Making Tax Digital are VAT registered businesses with turnover above the VAT threshold. These businesses are required to maintain digital accounting records and use compliant software to file their VAT returns, from the first VAT quarter starting on or after 1 April 2019.

April 2018 (20)

If you are a VAT registered business with taxable turnover above the VAT threshold you will need to keep your business records digitally from April 2019.
Digital records will include spreadsheets but information can only be submitted via API’s (“Application Programme Interface”) and therefore submission to HMRC will need to be through either an API enabled spreadsheet, bridging software or an appropriate accounting software package.
HMRC will not be providing free software for MTD for VAT.

In order to comply with MTD for VAT initially businesses will only have to upload the totals for each of the existing nine boxes on the VAT return
HMRC’s ultimate objective is for everyone to use digital accounting software for record keeping and VAT filing.

In time it is likely that more detail will be required to be submitted.

Yes. Unless you are among the ‘digitally excluded’ based on factors such as religion, disability and some other factors. Claims for exclusion have yet to be tested.

At the moment, no. However, a move to real time reporting suggests that tax payment dates will change in the future.

If you are not already keeping your accounting records on a software package capable of ‘talking to HMRC’ we also recommend that you move to one of these systems. This will make compliance with the MTD requirements easier but also enable you to generate better quality management information to assist with the running of your business. We recommend that you activate your PTA if you have not already done so in order to familiarise yourself with the information held there, which includes useful information such as state pension entitlement projections.

More of your tax return information will be sent to HMRC direct from third parties such as banks, employers or pension providers from April 2018, although you will still need to check this information is correct in your PTA.

A PTA is your personal tax record with HMRC and if you have not already activated it, this can be done via the Government Gateway here.
Agents cannot currently access PTAs, although HMRC are working on this as this will be a fundamental requirement if MTD for income tax is to work.

Certain information will be fed to your Personal Tax Account (“PTA”) by third parties such as bank or building society interest, state and other pension income and any employment income. It will be your responsibility to check this is correct.

When does all this start?

VAT reporting under MTD

VAT reporting for business over £85,000 VAT threshold

Start date: 1 April 2019

All businesses with taxable turnover over the VAT threshold of £85,000 will have to start reporting VAT returns via MTD from 1 April 2019. This includes companies, LLP’s, partnerships, sole traders and landlords and charities.

Income and corporation tax reporting under MTD

Unincorporated businesses (e.g. Sole traders, Landlords, and other self-employed people)

Start date: 1 April 2020 or later

Sole traders, self-employed people and landlords will have to start reporting on a quarterly basis from 1 April 2020 at the earliest. This will involve 4 quarterly returns and an end of year declaration.

Other Frequently Asked Questions...

What is the definition of taxable turnover?

Taxable turnover has the same definition as it does for VAT purposes and therefore includes standard rated, reduced rate, and zero rated supplies.

Will the rules apply to a business which is not VAT registered (because it makes exempt supplies) but has a turnover above the threshold?

No. Consider only taxable turnover as defined for VAT. Also, if the business isn’t VAT registered, MTD for VAT is not applicable.

How will adjustments for partial exemption fit in?

HMRC has set out various software journeys it expects businesses will use. Example 6 in the document explains how adjustments can be made in spreadsheets provided the total figures are manually (or digitally) transferred into the MTD compliant software (which could simply be an API enabled spreadsheet).

I record receipts and payments on a spreadsheet and my accountant adjusts for debtors and creditors at the year end. Will I now need to record customer and supplier invoices?

The spirit of MTD is that a business records each transaction as close to real time as possible but this is not always practical. All VAT registered businesses must keep and preserve certain records and accounts and under MTD some of these must be kept digitally.

I use the cash accounting scheme? How will MTD work for me?

The current rules will continue to apply i.e. VAT should be recorded based on the date cash is paid / received. The only difference is that the business must comply with the digital record-keeping requirements.

What is the position for a business which registered for VAT when its turnover exceeded the threshold, and then its turnover falls well below £85,000?

The business will remain in MTD for VAT even if turnover falls below the VAT registration threshold, for as long as it remains VAT registered.

Will there be any exemption available based on the age of an individual or where the business does not use a computer?

HMRC expects most businesses to be able to comply. However, the VAT regulations can exempt a person for whom it is not reasonably practicable to make a return using a piece of software for reasons of disability, age, remoteness of location and religious beliefs or any other reason. An exact age is not specified.

I currently submit monthly returns. Will I have to move to quarterly returns?

No. Businesses with non standard return periods (i.e. monthly or annually) will continue as normal although they will need to comply with the digital record-keeping requirements.

Are charities exempt from MTD for VAT?

MTD for VAT applies to any VAT registered businesses with turnover above the VAT registration threshold, for as long as it remains VAT registered.

When will API (Application Programme Interface) enabled spreadsheets be available and how do we access them?

These are available now, along with bridging software. Contact us to get details of these.

We already have software that connects to HMRC for VAT returns. Will this software be MTD compliant without any changes?

Maybe. We are aware of some software suppliers where older versions will require upgrading in order to be MTD compliant. We therefore recommend that you check the position with your software supplier.

How will the flat rate scheme operate under MTD?

Businesses using the flat rate scheme are not required to maintain digital records of purchases unless they are capital in nature and cost more than £2,000.

My business is on the annual accounting scheme with a VAT accounting date of 31 May. What is my MTD start date?

Annual accounting scheme users are part of the 6 month deferral and so not mandated until 1 October 2019. The first annual scheme affected will, therefore, be those starting on or after 1 October 2019.

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