Making Tax Digital for VAT – from April 2019

Featuring Julie Towers | 20th March, 2018

Making Tax Digital (MTD) is the most fundamental change to the administration of the tax system for at least 20 years. This is part of the wider Government agenda to transform the tax system into a modern digital one, making it easier for businesses to get their tax right and keep on top of their affairs.

When does it start and what does it mean for me?

VAT registered businesses operating with taxable turnover over the VAT registration threshold (£85,000 until at least 31 March 2020), will be required to keep digital accounting records and file VAT returns using MTD compliant software from April 2019 (the first VAT period starting on or after 1 April 2019). Taxable turnover includes income from standard rated and zero rated supplies. It does not include income from exempt or non-business supplies.

Businesses registered for VAT but operating with turnover below the VAT threshold will not be required to keep digital accounting records or to file VAT returns using MTD compliant software until 2020 or later. The current online method of VAT return submission via HMRC online services will not meet the requirements of MTD but will continue to be available until at least spring 2020.

In short, Making Tax Digital for VAT (MTDfV) will not change what is submitted to HMRC, just the way in which it is submitted. The accounting software package used will be required to upload the VAT return information from the software directly to HMRC’s portal.

Many businesses use spreadsheets to prepare VAT returns and keep records. HMRC has indicated that the use of spreadsheets will still be permitted but that in order to be MTD compliant, the spreadsheet must digitally link to a software product which uploads the data.

If you do not currently prepare VAT Accounting returns via a software package, or with the use of spreadsheets, our Cloud Accounting team are currently actively working with software providers in the lead up to MTDfV and can provide further guidance in this area.

For non-VAT registered businesses, MTD for VAT will only become relevant if they become VAT registered.

VAT pilot

HMRC plans to start the pilot in April 2018, initially by inviting a number of VAT registered businesses to sign up to the service. Over the subsequent months, it will expand the numbers and types of businesses able to sign up. This will allow the service to be tested ahead of mandation from April 2019.

PKF Francis Clark has been approached by HMRC to help pilot the new digital VAT process and has been asked about the possibility of signing up clients to take part in the pilot.

To participate in the pilot, businesses (or an agent acting on their behalf) must:

  • Use software to keep digital business records
  • Sign up to the service
  • Submit their VAT return when it becomes due using MTDfV enabled software

Although HMRC anticipates that most software companies will enhance their existing products to become MTDfV enabled, only a selection will be available from the start of the pilot. Therefore HMRC won’t invite businesses to sign up for the pilot until it has confirmation that the software is available.

What are the benefits of joining the pilot?

  • By being involved earlier, you can get used to the new system before it becomes mandatory
  • You will have access to more support during the initial stages of the pilot so we can check if we are doing it right or need clarification
  • HMRC will keep us up to date with what is happening as the service develops and how it affects our clients
  • It provides an opportunity to influence how the service looks and feels
  • Joining the pilot early means that by the time the rush comes when the service becomes mandatory, we will already be on-board
  • Participation in the pilot is voluntary – we can, for whatever reason, leave the pilot at any time

Where can I get further information about these changes?

PKF Francis Clark’s Cloud and VAT teams will be more than happy to answer queries relating to Making Tax Digital.

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