Making Tax Digital for Business – An update for VAT

Following on from our previous articles in relation to Making Tax Digital (MTD), HMRC have announced some changes and delays for certain types of business.

making tax digital vatUnder the MTD regulations, businesses with taxable turnover above the VAT threshold (currently £85,000) must keep digital records for VAT purposes and provide their VAT return information to HMRC using ‘functional compatible software’.

For most businesses, compliance with the regulations is mandated for VAT return periods beginning on or after 1 April 2019. However, MTD for VAT for some ‘more complex’ businesses has now been deferred until 1 October 2019. This deferral applies to: trusts; not for profit organisations not set up as companies; VAT divisions; VAT groups; public sector entities such as government departments and NHS Trusts, which have to provide additional information on their VAT return; local authorities; public corporations; traders based overseas; those required to make payments on account; annual accounting scheme users.

Software

Under the new MTD rules, businesses will have to use ‘functional compatible software’. This means a ‘software program or set of compatible software programs which can connect to HMRC systems via an Application Programming Interface (API)’. This must be capable of:

  • keeping records in digital form as specified by the new rules
  • preserving digital records in digital form
  • 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, via the API platform, information from HMRC to ascertain compliance. It is as yet unclear what this means, but it may relate to HMRC’s ability to send compliance prompts and nudges.

How are the records to be kept?

Keeping digital records will not mean businesses are mandated to use digital invoices and receipts, but the actual recording of supplies made and received must be digital. Software will not be available from HMRC, but a list of software providers who have tested their software as part of the pilot has been published. The use of spreadsheets will be allowed, but they will have to be combined with add-on software to meet HMRC’s requirements.

For details of currently available software and software under development, please click here.

How can Essex Abel help?

Whatever the size of your business, there is a time of great change ahead, and we are on hand to help with the challenges.

We advise considering the impact of MTD for VAT now. Any business not using digital accounting records will need to do so as soon as possible, and spreadsheet users may need bridging software or API-enabled spreadsheets to submit VAT returns.

If you are at all concerned about the implications of Making Tax Digital, Essex Abel’s team have many years’ experience of advising people in relation to their accounting systems and offer a FREE consultation to discuss your affairs. If you would like to take advantage of this offer, please contact us.

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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. Neither Essex Abel Ltd nor the author accept any responsibility whatsoever for any action taken based upon the information included in this articles.