Not Prepared for Making Tax Digital? Here’s an Overview of What You Need To Do To Comply
Making Tax Digital’s (MTD) new mandatory requirements come in to effect from 1 April 2019, and business must comply with the new regime for VAT, or Making Tax Digital for VAT (MTDfV). This means that companies that are VAT registered must keep some record digitally and VAT Returns must be submitted to HMRC digitally via an Application Programming Interface (API). There are a number of ways in which your records and returns can be transferred, but legislation (VAT Notice 700/22: Making Tax Digital for VAT) states they must be entirely digital.
Below we’ve put together an overview of the information we think you will find valuable, and help you understand what you need to do to comply with the legal obligations for Making Tax Digital for VAT.
Who Does MTDfV Affect? The Key Facts
> You will be entering MTDfV if the company has taxable turnover of above the £85,000 VAT registration threshold on 1 April 2019, regardless of company structure.
> There is a deferral of MTDfV for ‘more complex businesses’ until 1 October 2019. These are, trusts, not for profits that aren’t set up as companies, VAT divisions, VAT groups, public sector entities, local authorities, public corporations, traders based overseas, those making payment on account, annual accounting scheme users.
> You will have 30 days to digitally comply for MTDfV if your business exceeds the taxable turnover threshold (the time you must register for VAT) at any time after 1 April 2019.
> Any business in MTDfV must stay in the scheme even subsequent turnover falls under the threshold.
> A business must de-register for VAT to be able to withdraw from MTDfV.
> Any business that has voluntarily VAT registered can choose whether it joins MTDfV.
> Voluntarily VAT registered businesses not electing to go digital at this time should be acutely aware of their turnover as reaching £85,000 threshold will immediately switch them to MTDfV.
Don’t Panic – the Shift to Digital is Simple
While the remainder of this page goes into more legislative details, we thought it was important to explain how simple the switch could be for you in the first year. If you use a spreadsheet to collate your digital records, you can continue to do this as long as you pass them to us via email, on a disc or on a USB stick. Adams Moore will then digitally import that data into software that can connect to HMRC’s systems, we will make the calculations and complete the VAT Return on your behalf.
However, please also look at our page all about Xero online accountancy software, which allows you become digitally compliant in a more simple and cost effective way. With this method, Adams Moore can access your data when VAT Returns or Year End Accounts are due, so you have even less to worry about.
Mandatory Use of Software
Under MTD, specified records will have to be kept digitally using ‘functional compatible software’ and is important that data must only be also inputted manually once; copying and pasting from one place to another is considered manual transfer. Thereafter, the spreadsheet or software must be able to connect to any required compatible programmes and/or HMRC’s systems. For those businesses who cannot yet ensure data is transferred digitally after it has been inputted initially, there is a soft landing penalty period ending 31 March 2020 – we advise you to look at cloud software options, such as Xero, and HMRC has published a list of compatible software.
The software programme or set of programmes must be capable of:
> keeping specified records in digital form as required by the new rules
> preserving digital records in digital form for up to six years
> creating a VAT return from the digital records held in compatible software and submitting this data to HMRC digitally
> providing HMRC with VAT data on a voluntary basis
> receiving information from HMRC via the API platform
Records to be kept digitally are specified in the VAT Notice, and include:
> ‘Designatory data’ – name and place of business, etc.
> The VAT account linking primary records
> VAT return
> Information about supplies made and received – sales and purchases
VAT Return submissions can be from:
> An API enabled spreadsheet
> Bridging software
It is no secret that the requirements on businesses will be potentially more extensive under MTD, but smart use of accountancy software, online or otherwise, and having a digitally minded accountant will reduce, if not, remove any extra burden. For example, in relation to supplies made you will be required to record the different rates of VAT applicable, and for supplies received the amount of input tax to be claimed is must be detailed. If you would like further advice on the resource required and to determine if outsourcing some of your accounting compliance tasks to Adams Moore, please contact us for a free consultation.
Exemptions and Adjustments
> Hard copy invoices and receipts – while the recording of purchases and sales must be kept digitally, currently is accepted to keep paper copies of receipts and invoices when a digital version has not been supplied.
> When it’s not reasonably practicable – people can apply to HMRC to become exempt of MTD for reasons of age, disability, remoteness of location or other reason that does not make it reasonably practicable for the business to use digital tools to keep records or submit returns. Adams Moore has clients who fall under this category and we are helping them communicate with HMRC – contact us if you require help with MTD exemptions.
> Existing insolvency procedures – businesses subject to a bankruptcy course of action are exempt from satisfying MTD regulation.
> Religious beliefs – businesses run by practising members of a religious society or order with beliefs incompatible with regulation requirements can be deemed exempt from MTD compliance.
> VAT Online Filing Exemption – exemption for MTD may still apply even if the person or business is not currently exempt from online filing.
> Calculating adjustments outside digital records – at present, adjustments are often needed before VAT Returns are submitted, for example for the capital goods scheme, the fuel charge and partial exemption calculations. Under MTD, it is just the totals that need to be recorded digitally.
> Provisions for special cases – provisions have been made for complex businesses and circumstances, for example, retail scheme users will be only required to record daily gross takings digitally, rather than details of each transaction. Other conditions are regarding employee expenses, intra-group supplies for a VAT group, recording mixed rate supplies with a single price, invoices for multiple supplies, reverse charge supplies, supplies made by third party agents – please contact us if you would like to discuss any of these special cases in detail.
While 1 April may seem like a long way into 2019, we are advising all of our existing and prospective clients to carefully consider the MTDfV impact on their business now. If you submit VAT Returns yourself via spreadsheets, you may need to purchase bridging software or update the data to be API-enabled. If you use a combination of different software systems and spreadsheets, investigate how you will eradicate all manual links before 2020. We are on hand to guide you through the Making Tax Digital requirements – whether you’re an existing client or are considering changing accountants, please contact us with your queries.
Making Tax Digital will not be mandated for taxes other than VAT until at least April 2020. However, some businesses and agents are already keeping digital records as part of a live pilot to test and develop the Making Tax Digital service for Income Tax. If you are a self-employed business or landlord you can voluntarily use software to keep business records digitally and send Income Tax updates to HMRC instead of filing a Self Assessment tax return.