VAT and Making Tax Digital – how will it affect my business?
From April 2019 all VAT registered businesses with turnover above the VAT threshold will be required to maintain digital records and will need to send their VAT information to HMRC using third party commercial software. HMRC’s online portal will remain available to all other businesses that complete a VAT return but have turnover below the VAT threshold.
MTD for VAT will apply to VAT registered businesses with turnover above the VAT threshold. This includes unincorporated businesses, companies, LLPs, and charities. Businesses registered for VAT but with turnover below the VAT threshold can opt in and file their VAT information via MTD if they wish.
What we know so far…
We expect that a business will have to keep digital records and submit its VAT returns digitally with effect from the first VAT return period beginning on or after 1 April 2019.
The exemptions that currently apply for electronic VAT filing will be extended to cover MTD for VAT. There will be an automatic exemption for businesses which are registered for VAT but have turnover below the threshold. These businesses must elect for the exemption not to apply if they wish to submit their VAT information under MTD.
At this time we understand there will be no free software for MTD for VAT. HMRC is working closely with software providers to ensure a range of suitable products will be available.
Commercial software must be able to:
• Keep records in a digital form.
• Preserve digital records in a digital form.
• Create a VAT return from the digital records.
• Provide HMRC with VAT data on a voluntary basis.
• Receive information from HMRC via the API (application programme interfaces) platform. This will allow HMRC to send ‘nudges’ to the business/agent.
The use of spreadsheets will be permitted although they will need to be combined with third-party commercial software, using APIs, to ensure a seamless flow of data from the business to HMRC (and vice versa).
Digital record-keeping requirements
HMRC has confirmed that the requirement to keep digital records does not mean that businesses will have to make and store invoices and receipts digitally. Businesses can continue to keep documents in paper form if they prefer, although transactions will need to be stored digitally.
HMRC has stated that the following records will need to be kept digitally:
• Your business name
• The address of your principle place of business
• Your VAT registration number
• A record of any VAT accounting schemes that you use.
For each supply you make you must record:
• The time of supply
• The value of the supply
• The rate of VAT charged.
If you make multiple supplies at the same time these do not have to be recorded separately. You can record the total value of supplies on each invoice or receipt that have the same time of supply and rate of VAT charged. You must also have a record of outputs value for the period split between standard rate, reduced rate, zero rate, exempt and outside the scope outputs.
For each supply you receive you must record:
• The time of supply
• The value of the supply including any VAT that is not claimable by you
• The amount of input tax that you will claim.
If more than one supply is on an invoice you can record the totals from the invoice.
The VAT account is the link – the audit trail – between your business records and your VAT return. Under MTD for VAT, the information required to be held in the VAT account must be kept digitally (the regulations refer to this as your “electronic account”), and the information in that electronic account will be used by functional compatible software to calculate and fill in your VAT return.
To show the link between the output tax in your records and the output tax on the return, you must have a record of:
• the output tax you owe on sales
• the output tax you owe on acquisitions from other EU member states
• the tax you are required to pay on behalf of your supplier under a reverse charge procedure
• the tax that needs to be paid following a correction or error adjustment
• any other adjustment required by VAT rules
To show the link between the input tax in your records and the input tax on your return you must have a record of:
• the input tax you are entitled to claim from business purchases
• the input tax allowable on acquisitions from other EU member states
• the tax that you are entitled to reclaim following a correction or error adjustment
• any other necessary adjustment
Records must be kept for six years (or 10 years if you use VATMOSS). Digital records will need to be maintained for six years following deregistration.
Monthly and non-standard returns
Businesses will still be able to submit monthly and non-standard returns under MTD.
Businesses can, if they wish, provide information more frequently than quarterly.
Flat rate scheme
Businesses will still be able to use the flat rate scheme under MTD meaning digital records of purchase invoices will not be required (unless they relate to capital items which cost more than £2,000 including VAT).
Annual accounting scheme
Users of the annual accounting scheme will continue to send in one annual VAT return rather than quarterly reports under MTD.
Retailers will be able to record gross daily takings rather than each individual transaction
The existing error correction rules will apply under MTD. In some cases, amendments can be made through the MTD compatible software.
So, a lot to take in and making sure you have the right bookkeeping/accounting software package in place is going to be essential – Pastel will be one of the first providers to support the new VAT MTD filing requirements, we will not charge extra for this service and we will ensure your business keeps abreast of Making Tax Digital as it unfolds.