Making Tax Digital for VAT: an update

28 Nov 2018

Making Tax Digital for VAT (MTD for VAT) is set to come into effect from 1 April 2019. Here, we take a look at the latest developments.

MTD for VAT will affect those businesses whose turnover is above the current VAT registration threshold of £85,000: however, there are some exemptions and deferrals, as outlined below.

Businesses affected by MTD for VAT will be required to file their quarterly VAT returns using functional compatible software programs which can connect to HMRC systems via an Application Programming Interface (API). These software programs must be capable of keeping records in digital form and calculating the VAT return from these records.

As outlined in VAT Notice 700/22, HMRC will accept a 'cut and paste' method for digital links in the first year of mandation in order to allow businesses to get to grips with the new software.

HMRC has provided an up-to-date list of software providers with products compatible with their systems: this list can be found here.

HMRC's 'encouragement letters'

Throughout November, HMRC sent so-called 'encouragement letters' to businesses within the scope of MTD for VAT. 200,000 businesses which are eligible to join the current MTD for VAT pilot received these letters. HMRC also sent letters to some VAT-registered businesses with a turnover just below the VAT registration threshold.

HMRC has stated that it is 'committed to writing to everyone within the scope of MTD for VAT', and that it aims to accomplish this by the end of November. Agents, however, were not sent a copy of the letter.

Are your clients affected by the deferral?

Businesses with 'more complex' requirements will be given an additional six months to prepare for MTD for VAT. The following organisations will not be mandated to use the system until 1 October 2019:

  • VAT groups
  • VAT divisions
  • VAT traders based overseas
  • Local authorities
  • Public corporations
  • Trusts
  • Unincorporated charities and similar not-for-profit organisations
  • Certain public sector bodies who are required to provide additional information on their VAT returns
  • Those who use the annual accounts scheme
  • Companies paying VAT of £2 million or more who make VAT payments on account.

Exemptions

Firms that fall into the categories below are exempt from MTD for VAT:

  • Businesses run by practicing members of a religious society or order with beliefs incompatible with the regulation's requirements
  • Businesses subject to an insolvency procedure
  • Those satisfying HMRC that, for reasons of age, disability, remoteness of location or for any other reason, it is not reasonably practicable for them to use digital tools to keep business records in order to submit returns.

Keeping digital records and filing quarterly updates will not be mandatory for taxes other than VAT before April 2020.

Practice Track's comprehensive two-page factsheet supplies information on HMRC's timetable for the implementation of MTD for VAT; MTD-compatible software; the record-keeping requirements under the initiative; and how accountants can help their clients to prepare ahead of the 1 April 2019 start date. For more information, or to place an order, please click here.

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