In under 6 months the Government’s first phase of digital taxation for businesses “ Making Tax Digital for VAT ” goes live, yet there still appears to be very little knowledge of what the rules are, who they apply to or when they start.
The new rules will apply for the first VAT quarter starting on or after 1 April 2019. From that date most VAT registered businesses will be required to:
- a) maintain their accounting records in digital format; and
- b) submit VAT returns to HMRC using functional compatible software
Keeping records in paper format will no longer meet the legal requirements for MTD for VAT.
The new rules will apply to all VAT registered businesses whose taxable turnover exceeds the compulsory VAT registration threshold (currently £85,000 per annum). This applies regardless of the type of business i.e. sole trader, limited company, LLP, Trust etc.
From 1 April 2019 access to the Government Gateway for VAT will be turned off for businesses subject to Making Tax Digital (MTD for VAT), although those businesses with a lower value of taxable supplies who have voluntarily registered for VAT may continue to access it.
Voluntary VAT registered businesses may join the scheme if they wish, but businesses whose taxable supplies fall below the £85,000 do not automatically drop out of MTD for VAT although they may of course deregister for VAT if they wish.
There are exemptions for certain businesses including:
- Businesses run entirely by practising members of a religious society whose beliefs are incompatible with the requirements of MTD
- Those that are digitally excluded including those in remote locations with no access to the internet
Many older people were not brought up with computers and it is felt to be unreasonable to force them to learn now. Consequently, there is also expected to be an exemption due to age, although no further details have yet to be given.
The new rules will have no affect on any other VAT requirements so all of the existing schemes such as the cash accounting scheme, annual accounting scheme, flat rate scheme and retail schemes will all operate as before. Similarly filing dates and payments dates will remain unchanged.
There were initial concerns that spreadsheets would not constitute digital records and specialist software would be required but HMRC have confirmed that spreadsheets will be acceptable although bridging software will be required to file the figures with HMRC.
Although HMRC will currently only receive the 9 box entries that appear on the VAT return, the bridging software must take the VAT figures direct via a link from the spreadsheets i.e. its not adequate to prepare the figures in one spreadsheet and then cut and paste the figures into the bridging software. There are, however, some exceptions in relation to complex cases, such as groups, partial exemption calculations, Tour Operator Margin Schemes and Second Hand Margin Schemes.
From experience I know that some of our clients may have purchased a software package from a well known leading supplier a good number of years ago and have used it ever since on the basis that if its not broken why would you want to upgrade it? I think that its unlikely that anything but the latest version of the software is going to handle MTD for VAT so if you are in that position then it’s now time to seriously think about how you are going to operate going forward. I think many will see this as yet another sound reason for moving to a cloud based software as a service version that is always up to date.
Whether you are using an existing package, spreadsheets or paper records its now time to really get things moving. There may be only 2 more VAT submissions before the new regime comes into play.
We do currently still have a number of free demonstrations of the Xero product that we recommend, and we are happy to help train clients with Xero or any other software or spreadsheets that you may wish to use. We are also very happy to advise clients on which software would work best for them and help them with the set up and conversion as required. One thing that you must not do is ignore this any longer.