Despite having to redirect resources to deal with ever increasing pressures from Brexit, and calls to further delay the implementation, HMRC are persevering with their digital revolution – Making Tax Digital (MTD) – starting with MTD for VAT taking effect from 1 April 2019. This will see VAT-registered businesses having to comply with new legislation surrounding the digitisation of records and submissions to HMRC through an electronic VAT account.

Who is affected?

MTD for VAT will be compulsory for VAT registered businesses with turnover above the VAT registration threshold – this is currently frozen at £85,000 until 1 April 2020. Companies that have voluntarily registered for VAT with a turnover of less than £85,000 are therefore not required to comply with MTD but can opt in if they so desire. MTD for VAT may be extended to all VAT registered companies from 1 April 2020 but further details have yet to be announced.

Generally speaking only the ‘digitally excluded’ will be granted an exemption from complying with MTD but HMRC will consider exemptions on a case-by-case basis. HMRC have defined the ‘digitally excluded’ as being those who cannot engage with software due to religion, disability, age or remoteness of location.

Digital records and software

Companies will be required to digitally store the following records and information within their MTD ‘functional compatible software’ and must be preserved for up to six years:

  • Designatory data – including business name and address, VAT registration number and details of VAT schemes utilised
  • VAT payable on supplies made and supplies received – including the timing and value of the supply and the VAT rate applied

The need to store this information digitally will see an end to manual, paper-based solutions that many businesses will be comfortable with.

Companies will now be required to utilise ‘functional compatible software’ which will be capable of recording and preserving the above digital information, provide information and returns to HMRC using that information and receive information from HMRC. Different pieces of software can be used to store and process the information but must be linked digitally. For further information regarding the software requirements of MTD, please see our Xero article in this edition of enews.

What’s next?

MTD for income and tax corporation tax are next on the list. HMRC are keeping tight lipped regarding the timescales for these but have confirmed that they will not become mandatory before April 2020.

Now is a good time to review whether your accounting software and procedures – do please get in touch to discuss any questions you may have.