What is ‘Functional Compatible Software’?

24th August, 2018

Functional compatible software means one, or several, software program(s) which can connect to HMRC’s revised Government Gateway. This is done using an approved Application Programming Interface (API).

This software must be able to:

  • Record and preserve records in a digital form;
  • Provide to HMRC information and returns from that digital data using the API platform; and
  • Receive information from HMRC via the API platform.

HMRC will only receive the information contained within the existing 9 boxes of the VAT return. In time there will also be the option to provide supplementary data. As the legislation stands, HMRC will not have access to the business’ accounting records.

The information a business must retain digitally is as follows:

  • The business name, the principal place of business, the VAT registration number, and details of any VAT accounting schemes you use;
  • Transaction level detail, including the tax point, net value of the transaction and the rate of VAT charged, about the supplies made and received and together with any adjustments made.

This is no different to the existing VAT recording requirements. The only change is the digital link, the traceability, of the initial transaction through to the VAT return, including any adjustments that are made.

Is your accounting software Making Tax Digital for VAT functional compatible?

More than 150 software suppliers are working with HMRC and have said they will provide software for Making Tax Digital for VAT (MTDfV) in time for April 2019.

A full list of software suppliers who have either successfully tested their products with HMRC or demonstrated their prototype can be found here.

A word of caution, the vast majority of software suppliers see MTDfV compliance as additional functionality and charge for this. To use Sage, the UK’s largest accountancy software supplier, as an example; a business must be on the latest version of the software and paying an active licence subscription to have the ability to file their MTDfV return.

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