Changes to VAT returns from 1 April 2019 – are you ready?

25 October 2018

HMRC announce a deferment of implementation for some VAT registered organisations

HMRC have extended the deadline for Making Tax Digital (MTD) for VAT by six months for the following organisations:

  • trusts
  • ‘not for profit’ organisations that are not set up as a company
  • VAT divisions
  • VAT groups
  • those public sector entities required to provide additional information on their VAT return (Government departments, NHS Trusts)
  • local authorities
  • public corporations
  • traders based overseas
  • those required to make payments on account, and
  • annual accounting scheme users.

This is a significant development. The scope of MTD has been reduced already and now we see a deadline extension for these bodies. With six months to go, it will be interesting to see if further concessions are announced.

It is also worth noting that this update is contrary to the largely positive commentary provided by HMRC in respect of the progress of MTD.

What is MTD?

Mandatory changes come into effect on 1 April 2019 (or 1 October 2019 in light of the changes above) that will fundamentally change the VAT return system.  You will no longer be able to submit returns through the government gateway and instead must use software that will allow for digital submission to HMRC. The changes will mean that VAT returns starting on or after 1 April (no joke) will be subject to the new rules.

The changes are referred to as ‘Making Tax Digital’. It is a change designed to reduce tax errors and produce additional revenue of £1bn by 2020 for the Treasury.

The MTD software must be able to:

  • Record and preserve digital records
  • Provide HMRC with information and returns from data held in those digital records, and
  • Receive information from HMRC via their Application Programming Interface (API) platform.

The software must have digital links so that there is a record of the ‘digital journey’ of the data. HMRC are allowing a ‘soft landing’ on digital links with full requirements needed to be met by 31 March 2020. This is a legal obligation.

This is one of the most significant changes to the VAT return system.  It is an opportunity to streamline VAT reporting and remove the possibility of transposition errors, but it requires some work to ensure that organisations are complying with the new rules.

Penalties?

One important thing to bear in mind is the interaction with penalties for late submission and payment. These are based on a flat percentage of the tax due with no concept of proportionality. A recent case saw a penalty of £300k confirmed because the taxpayer paid one day late.

It is hoped that HMRC will apply a light touch to penalties when the system is introduced. However, even if they do, this would be finite and HMRC focus on reasonable care when considering penalties, so every VAT registration needs to be working to this standard and be able to evidence appropriate care.

What steps should I take?

If you prepare returns using an accounting package then your provider should be developing software to ensure compliance. If you use a spreadsheet then you are likely to need some bridging software which will allow for digital submission to HMRC. These are being developed and there are a number of software providers offering suitable solutions.

Can we help?

If you would like to discuss this matter, please do not hesitate to contact your usual UHY contact, David Rawcliffe or Matthew Granger.

To read more about Making Tax Digital, visit our designated MTD page here.