Making Tax Digital - VAT
What is MTD for VAT?
Making tax digital for VAT is a fundamental change in administration and digital filing of VAT, taking effect from April 2019.
Note: There will be a 1 year 'soft-landing' period where certain requirements will not be enforced but encouraged. These relate primarily to practicalities of software providers keeping up with the changes.
Are all VAT registered businesses affected?
Most but not all.
Businesses voluntarily registered will not be required to file under MTD where annual turnover remains below the current VAT registration limited (£85,000). Once turnover has exceeded £85,000 however, MTD filing will be mandatory regardless of whether income subsequently drops back below this level. Once in, you will always be in.
Don’t forget 'business' for these purposes includes VAT registered landlords too.
Are there any exemptions?
Yes, as with other digital reporting requirements there are limited exemptions for: practicing members of religious societies incompatible with the regulatory requirements; where it is not reasonably practical to comply (due to age, disability or remoteness of location); or for businesses currently undergoing an insolvency procedure.
Are there any deferrals?
Yes, HMRC have announced that a 6-month deferral for MTD for VAT applies to: trusts, unincorporated not-for-profits, VAT groups, divisions, some public sector entities and those taxpayers making payments on account or under annual accounting schemes. These deferrals relate to an estimated 3.5% of taxpayers and in these cases will not become mandatory until October 2019 instead.
Conversely, as of October 2018 some pilots are now live.
What will change under MTD reporting (from the existing online submissions)?
From April 2019 all reporting will be completed electronically, directly from within your software. This means there will be no manual typing of reported figures into the online screen – all information exchange will be automated via HMRC's updated portals.
Furthermore, a key premise of MTD is that HMRC will be able to ping queries back to your data – although the data they receive will (initially) only be summaries there will be the opportunity for HMRC to pull out further information. Under MTD the channel created will therefore be two-way, not just a submission stream.
Does that mean I need new bookkeeping software?
That means all VAT records must be kept digitally. The extent of the change depends on your current record-keeping.
I keep my records on a cloud website (e.g. Xero or QuickBooks Online) – do I need to change?
Probably not. Most cloud software will keep abreast of MTD changes and will therefore be compatible. You will just need to check with your own software providers that there are no further subscriptions or changes you need to make to ensure you are MTD ready. If you would like to discuss this, please get in touch.
I keep my records on a desktop software (e.g. Sage Line 50, QuickBooks desktop) – do I need to change?
Probably not, although you will need to make sure your software is up-to-date. Older versions of desktop software may need upgrading to MTD-compliant versions, for which there is likely to be a cost. You will need to check with your provider for your own circumstances.
Similarly, you will need to keep your software abreast of current changes to MTD requirements – some software providers may restrict support for legacy versions as a result of the MTD changes.
Alternatively, this may be an opportunity to review your record keeping and switch to a different solution which suits you better. We would be more than happy to discuss your various options with you.
I keep my records in a spreadsheet (Excel) – do I need to change?
Although it may be beneficial to review your other options (such as an online software), you probably won't need to fundamentally change how you keep your records.
After pressure from feedback groups HMRC have relented their original plans to exclude all spreadsheets and current guidance says 'API-enabled spreadsheets' will be allowed as part of the digital journey. This means that Excel spreadsheets can be used as a calculation step or even basic digital bookkeeping tool but it will need some sort of MTD plugin to facilitate digital communication with HMRC / other software as necessary. We don’t yet know what exactly this will look like, but this does mean fundamentally you may not need to ditch those spreadsheets.
However, again, this may be an opportunity to review your record keeping and switch to a different solution which suits you better anyway. If you would like to discuss either keeping MTD compliant spreadsheets or your options for reviewing your bookkeeping systems then we would be happy to speak to you.
I keep all my records on handwritten ledgers / cashbooks – do I need to change?
Yes. From April 2019 all core VAT records must be kept digitally, in some form or another. This encompasses all records of VAT supplies (date, value and VAT amount) i.e. all sales and purchase ledgers.
You will therefore need to start thinking about how you will update your business systems to comply with this from April 2019 onwards. If you need some help, please get in touch.
Does this mean all of my bookkeeping will now have to be digital?
Currently records not forming part of the VAT ledger may still be kept manually – MTD for VAT only covers VAT ledgers. Fixed asset registers, for example, do not have to be kept digitally (yet).
Some of my income is collected by a third party (e.g. a letting agent, salesmen etc) on my behalf. Does this mean I have to digitally account for everything they do?
No – not necessarily. Where a third party collects supplies on your behalf, those supplies do not fall within the digital record keeping requirements until you have received the information from that agent.
So if, for example, you let out 10 units and your agent supplies you with a monthly summary encompassing income from all 10 units together then this summary may be the starting point of your digital record keeping.
What about purchase invoices? Do I now have to scan in all of my receipts?
No – these do not form part of the VAT records. You must still keep copies of all relevant VAT receipts but this can still be hardcopies in files – electronic copies can be kept instead but are entirely optional.
Are there any changes to reporting deadlines or payment? Do I have to do these more often?
Not yet – currently your existing VAT quarters will remain unchanged and your reporting pattern will be on the same timescales as pre-MTD.
Your first VAT period commencing on or after 1 April 2019 will be subject to the new MTD regime. If you file VAT Returns quarterly, this will probably be the quarter ended 30 June 2019, 31 July 2019 or 31 August 2019.
I am on the cash accounting scheme – does anything different apply?
No – the principles are exactly the same. This does mean your cash ledgers (e.g. bank summaries etc) are now covered under the MTD regime however.
I am on the flat rate scheme – does anything different apply?
No – the principles are exactly the same. However, records of purchases / expenses will therefore not ordinarily be covered by the MTD requirements (as these do not form part of your VAT reporting), except to the extent of which they relate to reclaimable capital goods purchases.
Some of my supplies are exempt and therefore I have to complete a partial exemption calculation – does anything different apply?
In principle – no. However, we are aware some software is not expected to be able to handle the partial exemption calculation directly so some sort of external calculation / intervention will be necessary to work out the correct VAT liability. This will therefore need some extra consideration.
You file my VAT Returns for me – I assume you will therefore have everything you need?
Where we are responsible for calculating and / or filing your VAT Returns we will of course be updating our processes to ensure we are MTD compliant too.
Unfortunately, this may need some changes to the way we do things (particularly where we do not receive data from you digitally) but we will be in touch on a case-by-case basis to discuss this nearer the time.