Making Tax Digital for VAT (Value Added Tax)

From April 2019 onward, VAT (Value Added Tax) registered businesses and individuals with a taxable turnover above the VAT threshold (£85,000) will be obligated to keep digital records and send returns using MTD (Making Tax Digital) compatible software. 

MTD aims to be more effective, more efficient and easier for taxpayers to get right. MTD aims to digitise the economy, as Britain is still behind many other countries. We understand that change is not embraced by all, but we will be there to support our clients at every step during the transition to digital. 

What is changing?

Those VAT registered businesses and individuals with a taxable turnover above £85,000 are required to keep their VAT business records digitally and must use MTD compatible software to send the returns. Unfortunately, HMRC will not be providing software and commercial software must be used.  Essentially, VAT returns will be compiled by pulling data from digital records and will be sent via APB-enabled products and not through the VAT Portal. 

If you usually send paper receipts quarterly, it would be useful to consider JR Inbox. This will allow you to send a photo or a scan directly to us via your designated JR email address, monitored by our dedicated team. Ask about JR Inbox.

What is staying the same?

Despite all this change, rest assured some things will be staying the same. VAT Return frequency and payment deadlines will not be affected, and neither will eligibility for VAT special schemes. There will also be no change in legislation regarding the seven-day period for submission.

Who will be affected?

Initially, MTD will affect VAT registered businesses or individuals with a taxable turnover above the VAT threshold. Smaller VAT registered businesses can participate if they wish.

MTD will not be mandatory for other types of tax before 1st April 2020.

People and businesses can be exempt from participating in MTD for certain reasons;

  • Insolvency
  • Religious grounds
  • It is not reasonably practical (remoteness, age, disability)

Key points to consider

  • Examples of data that must be recorded digitally include:
  1. Designatory data
  2. Business name
  3. Address
  4. VAT registration number
  5. A record of VAT accounting schemes used
  • To remain compliant, Functional Compatible Software must be used. This means that there must be a link between software if a set of programs is used. Our first choice of software for our clients will naturally be Xero.
  • Data cannot be transferred, the correct software must be used.

Next steps

Initially, there will be a ‘soft landing’ when MTD comes into effect. HMRC has proposed one year for this period, which gives people more time to update records. In certain circumstances, noncompliance penalties will not be issued for this one-year period.

To fully prepare for MTD, there are some steps that should be followed;

  • Make a start on keeping your records in digital format either via your own software or JR Inbox.
  • Send them to us in good time to complete your VAT return, which we can then submit on our approved software.
  • Please be aware that it will no longer be possible to submit three VAT returns based on outputs as there is a requirement to keep records in ‘real time’.

We’re happy to advise on the above, please feel free to call us on 0161 832 4451 or drop us a line at mail@jackross.co.uk. Alternately, take a look at our FAQ.