Making Tax Digital for VAT – are you ready?

12 April 2018

HMRC have published legislation and a draft public notice outlining their plans for the digitisation of VAT accounting with effect from 1 April 2019. All VAT registered businesses should start to prepare now for the changes to the way they will need to keep their accounting records.

What is Making Tax Digital for VAT?

  • From April 2019 VAT registered businesses with a turnover in excess of the VAT registration threshold of £85,000 must keep their records digitally and must submit their VAT returns via MTD compatible software. The option to submit via the HMRC website will no longer be available. In practice this means that the first VAT return due on or after 1 April 2019 will need to be submitted in a MTD compliant format.
  • Exceptions to this obligation will be extremely limited and broadly confined to those who would also be exempt from online filing of VAT returns. HMRC have confirmed that charities will not be excused from MTD for VAT.

How will it work?

Under Making Tax Digital for VAT, the following information must be kept using ‘functional compatible software’ approved by HM Revenue & Customs:

  • The taxable person’s name, address and VAT number, plus any VAT accounting schemes it uses
  • The time and value of each supply made and the VAT rate charged
  • The time and value of each supply received, plus the amount of input tax to be recovered
  • The amount of any adjustment or corrections
  • The VAT exclusive value of each of the following outputs: standard rated, reduced rated, zero-rated, exempt or outside the scope.

Approved accounting/book keeping software will be available which will keep all the business books and records in a digital format and be capable of producing a VAT return from these records which can then be submitted to HMRC.

If books and records are currently kept on spreadsheets HMRC have confirmed that this will be accepted as digital record keeping but businesses will need to use ‘bridging’ software to feed this information into a product that can produce and submit a VAT return. This ‘bridging’ software is however not yet available.

None of the software will be provided by HM Revenue & Customs for free – it will be developed and sold to taxpayers by third party software providers.

What should my business do to prepare?

Given the short timescale it is essential that businesses start to prepare for Making Tax Digital for VAT now. The first steps to consider are as follows:

  • Review how you currently collect the information to prepare your VAT Returns. If this is all in digital format, identify areas where linkage will be required.
  • Consider whether your current system of record keeping will meet the requirements for Making Tax Digital for VAT. If all or part of your records are kept on paper you will need to understand what your options are in terms of digitising your records and you may wish to do this from the start of your next accounting period to avoid changing systems part way through an accounting year.

How can we help?

UHY can help you to review your current record keeping arrangements to identify the changes that will be necessary to comply with the requirements that MTD will bring.

For further advice and information on how your business can prepare for Making Tax Digital for VAT, please get in touch with your usual UHY contact.