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How will “Making Tax Digital” affect you?

24/08/2018

Making Tax Digital is part of the government’s goal to make HMRC a world leading, digital tax authority. It will affect VAT-registered businesses first, starting with VAT periods that begin after 1st April 2019.

Making Tax Digital for VAT (MTDfV) will bring three key changes from April 2019:

  • Keeping digital records will be compulsory
  • Data transfer between different platforms must be digital
  • Returns will be submitted via HMRC’s application programming interface (API) directly from those digital records.

Only businesses that have a turnover above the £85,000 threshold will have to conform from April 2019. If you have a lower turnover and are voluntarily VAT-registered then you won’t be affected but can opt into MTDfV if you would like.

From April 2019 the current HMRC online portal will close for businesses with a turnover above £85,000 and you will need to submit their VAT return figures directly from your accounting system or via ‘bridging’ software. This is essentially the same but HMRC has calculated that approximately £4bn per year is lost in simple VAT mistakes alone and has stated that it expects MTD to assist in reducing the errors made.

Mandatory reporting under MTDfV will affect all types of VAT-registered businesses.

What does this mean for you and your business?

You will need to maintain certain VAT records using functional and compatible software approved by HMRC.

Approved software will be listed by HMRC in due course (once the pilot has been developed), but it is defined as a program or set of programs that can:

  • Record and preserve electronic records in an electronic form
  • Provide HMRC with information from the electronic records and returns in an electronic form, and by using the API platform
  • Receive information from HMRC

If you still use manual bookkeeping methods you will need to convert. If you currently use spreadsheets you can invest in additional bridging software which will be necessary to submit your VAT returns.

If you account for VAT using the Flat Rate Scheme (FRS):

  • You don’t need to keep a digital record of your purchases unless they are capital expenditure goods on which input tax can be claimed. You don’t need to keep a digital record of the goods used to determine if you need to apply the limited cost business rate.

What 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.

Under MTD you will need to keep digital records of your sales, broken down by VAT liability (i.e. the value of standard-rated, zero-rated, exempt and outside-the-scope supplies). At the moment, all that is required for your VAT return is a total of all sales.

How will this affect your VAT returns?

The VAT return must be submitted via the API. It will still be a nine-box return. The big change is that this will be filled in by pulling information from the digital records.

The end-to-end transfer of data has to be digital, but this doesn’t have to come from a single software platform. HMRC has said that more than one platform can be used provided that there is a digital link between them. Digital links can be by hyperlink or download.

HMRC has also said there won’t be penalties if digital links don’t exist between all the relevant software in the first year, but the final submission has to be made digitally via the API.

Where there are adjustments, it’s only totals that are kept digitally; calculations don’t have to be made using the software.

If you have any queries, please do not hesitate to contact us.

 

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