What is 'making tax digital'?

You may have heard the Chancellor discuss Making Tax Digital in recent Budgets, and from April 2019, the Government’s Making Tax Digital (MTD) programme begins in earnest.

Who is affected by Making Tax Digital?

If you are a VAT registered business with taxable turnover above the VAT registration threshold (currently £85,000 p.a.) you will have to keep your records digitally (for VAT purposes only) and submit your VAT return information to HMRC digitally through ‘MTD functional compatible software’.

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.

When does making tax digital for VAT Reporting come into effect?

MTD for VAT will apply to VAT return periods starting on or after 1 April 2019.

So if your VAT quarter ends on 30th June 2019, this will be the first VAT quarter period affected by the new VAT reporting requirements.

What are the requirements for MTD for VAT reporting?

Businesses must use “functional compatible software” to submit digital information to HMRC. In simple terms this means some form of computerised bookkeeping software or cloud accounting package must be used to connect to HMRC to submit information to them. HMRC have advised that the use of spreadsheets will be permitted although they will need to be combined with third-party commercial software, using APIs, (Application Programming Interface) to ensure a seamless flow of data from the business to HMRC (and vice versa).

What is Brookson doing to prepare for these changes?

Brookson already produces its customers VAT returns’ digitally and have are registered with HMRC directly as a software provider- so all the necessary steps are in place in readiness for our customers digital submissions next year.

What do I need to do as director of my limited company ahead of these changes?

It has always been essential part of being a director that you keep your accounting records up to date, particularly as a VAT registered business.

Now that your digital records comprise your quarterly VAT submission from next year, it’s important going forward that you ensure your digital records are as accurate as possible including:

  • Raising invoices promptly in the correct VAT period;
  • If you are registered under the standard rate VAT scheme, ensure your expenses (paid through your business account or paid personally) are analysed, to correctly reflect the appropriate VAT treatment (and you retain your VAT receipts to evidence same).

Are there any further changes to VAT reporting or any changes to payment dates?

Submission dates and payment dates for VAT will not change. Therefore, VAT return schemes such as the Flat Rate Scheme and the Standard VAT scheme will continue to be submitted on the same basis as previously but will need to keep and submit digital records.

What records must be maintained digitally for MTD and VAT Reporting?

HMRC have advised that you must have a digital record of the following and HMRC refer to this as your “electronic account”:

  • Your business name, address, VAT number and the VAT accounting schemes used.
  • The time of your supply – this is the date that you must declare output tax on.
    This is typically when you send your VAT invoice or if you are on cash accounting, when the cash is received.
  • The value of the supply
  • The amount of tax that you will claim

HMRC has also 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.

Are there any changes to the normal VAT Return Procedure?

The VAT return will be populated with information directly obtained from the underlying digital records. The return will still look the same as it has previously done with its normal nine boxes. In the future, there will be a facility to submit supplementary data, which will be on a voluntary basis and HMRC has advised that they will provide further information in due course.

Are there any further digital developments in the pipeline?

MTD is a work in progress for HMRC – for VAT registered businesses over the VAT threshold of £85,000 the key thing to remember is that digital records need to be retained and we will submit your VAT return information to HMRC digitally through ‘MTD functional compatible software’ on your behalf. Keeping on top of your VAT records is important too.

HMRC have a timeline in mind with regards to bringing MTD in for other taxes- however, businesses will not be required to keep digital records or provide quarterly updates for HMRC for other taxes until at least April 2020.
Brookson will continue to post further updates in the forthcoming months to keep you up to date with these changes.

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