Making Tax Digital for Business (MTDfB) is the government’s policy to move ALL business-related tax reporting online for a modern, digital tax system. The objective is to make tax reporting more accurate, more reliable, and more efficient.
Making Tax Digital for VAT, is part of the bigger MTDfB picture.
To prepare our clients for MTD, we have been highlighting the imposed changes by HMRC for the last year. It is now not long until the MTD requirements in relation to VAT come into force.
Are you ready?
We know from many conversations that this change is a consideration for the majority of our clients, especially those that currently keep their records manually or in a spreadsheet, instead of using accounting software.
MTDfB means that businesses will be required to make, preserve, and then submit their existing tax records electronically.
Organisations will need to plan, prepare and deal with these changes to ensure they remain tax compliant.
Stage one: Making Tax Digital for VAT
From April 2019, if you are a VAT registered business with a taxable turnover above the VAT threshold (currently £85,000) you will be mandated to keep digital VAT records and send returns using Making Tax Digital (MTD) compatible software.
HMRC will require you to keep VAT records using ‘functional compatible software’. This means using one or more software programs which can connect to HMRC’s systems using an approved Application Programming Interface (API).
This software must be able to:
- Make and keep records in a digital form;
- Preserve records in a digital form for up to six years;
- Create a VAT return from the digital records and provide HMRC with that information digitally; and
- Receive information from HMRC via its API platform.
Digital records will need to include the following:
- The business name, the principal place of business, the VAT registration number, and details of any VAT accounting schemes you use;
- The VAT account and the audit trail kept between primary records and the VAT return, including a summary of outputs; and,
- Transaction level detail about the supplies made and received and any adjustments made.
These changes may mean you need to take a more detailed look at your overall VAT accounting process.
The vast majority of businesses use spreadsheets in some form as part of their VAT accounting process. Some sources report that only 12% of VAT returns are completed using software, which of course presents change for many businesses going forward.
HMRC would like to see a solution for business owners who keep their records in Excel or similar formats. We have been following the MTD news for the past 12 months and there may be an Excel based solution planned or written, but it is now looking like it will be much nearer to the April deadline before more is known.
One of the very specific requirements with MTD is that any communication between your records and HMRC, even via a bridging solution, must utilise a digital link (an electronic or digital transfer or exchange of data between software programs, products or applications). This is avoiding any cut, copy and paste activity.
Our view is that the majority of business owners will need to review their current VAT submission processes as this is likely to involve change. We would recommend that it is a good time to also review the use of accountancy software that suits the business for more benefits that just MTDfB compliance.
The MTD rules in relation to VAT apply from your first VAT period starting on or after 1 April 2019.
Under MTDfB, the current Gateway login process for 3rd party API software will change significantly. We have been advised that businesses will be required to authorise each specific commercial software product BEFORE it can be used to submit VAT Returns.
We therefore recommend that all businesses consider their solution in good time and do not leave it until April, as you must register/sign-up for MTD with HMRC before the chosen MTD compliant software can be used.
You can read a copy of the full VAT notice 700/22 by clicking here
More about our support for MTDfB can be read by clicking here
If you would like to discuss MTDfB in more detail and consider the options for your business, then please call us on 01865 379272