As you may already know, Making Tax Digital has hit a number of welcome set backs over the last 12 months. That said, HMRC are pressing forward with their system development with a full-scale pilot taking place during 2018 for income tax for unincorporated businesses. Of course, this will be voluntary until at least 2020.
However, if you read my blog back in the summer of 2017 you will know that MTD for VAT will become compulsory for VAT registered business trading above the VAT registration threshold (currently £85,000) from 2019. Specifically, for VAT return periods commencing on or after 1 April 2019. With this being just over a year away, it really is time to start thinking about how this might affect your business, not least because migrating your business recordkeeping process often requires detailed thought and planning.
So, what do we know so far?
Record keeping must be in a digital form. This may include spreadsheets but it is clear that HMRC want businesses using accounting software. With accounting software having many benefits over spreadsheets, this is not necessarily a bad thing for all but the simplest businesses.
Submitting VAT returns through the current web portal will no longer be available. Instead, VAT figures will need to be submitted directly from digital records to HMRC without any manual rekeying of data, via a direct link between the software and HMRC.
Where spreadsheets are used, they must be used alongside compliant software called ‘bridging software’ which will take the figures from the spreadsheet and submit them to HMRC digitally. There must be no rekeying.
If calculations are required, such as for partial exemption or fuel scale charges, for example, these calculations can sit outside of the accounting software, providing the resulting adjustments to the VAT return are entered into the software, before being submitted to HMRC.
If an organisation uses multiple systems to provide components of their VAT return, these must be consolidated digitally. This may be by way of a spreadsheet and bridging software, but the links between the software and the spreadsheet must also be digital and not the result of a manual process.
We understand that there will be a ‘soft-landing’ period of 12 month in respect of mandatory digital links between multiple systems/spreadsheets to allow time for businesses to adjust, but there will be no such soft-landing in respect of the actual submitting of VAT returns which must be via compatible software direct to HMRC.
There are no exemptions for charities or similar non-profit organisations, although there are limited exemptions for certain groups as follows:
• where a business is run entirely by practising members of a religious society whose beliefs are incompatible with the regulations, or
• where it is not reasonably practical to use digital tools for reasons of age, disability, remoteness of location, or
• or where you are subject to an insolvency procedure.
Finally, organisations trading below the VAT registration threshold and voluntarily VAT registered may choose to comply with MTD for VAT but are not required to do so. The web portal will remain available for those organisations and digital record keeping will not be compulsory.
Please click here for our handy guide about Making Tax Digital.