Making Tax Digital for VAT – what you need to know

5 June 2018

Making Tax Digital (MTD) was announced in the April 2015 Budget and is intended to digitalise tax collection in the UK. MTD for individuals was recently put on hold indefinitely while HMRC struggle to cope with the Brexit-induced increase in their workload.

When will it start?

MTD for businesses is still on track to begin its roll out: starting with VAT from 1 April 2019.

Who does it apply to?

This will apply to VAT-registered organisations which exceed the VAT registration threshold of £85,000. This means that any businesses that are voluntarily VAT-registered will not be affected.

Two points are worth noting:

  • businesses that are not required to comply with MTD can do so voluntarily if they wish; and
  • once you’re in the system you stay in for the duration of the VAT registration.

As the current timetable stands, VAT-registered businesses will have to submit their VAT returns digitally with effect from 1 April 2019.

HMRC are running a pilot at the moment with some volunteer organisations. Software providers are also developing and testing their software to ensure clients are able to meet their reporting obligations. This is one of the biggest changes to tax accounting in a generation (or two) and it‘s being implemented for a number of reasons, including the desire to close the tax gap (ie. the amount of tax considered due compared to the amount collected).

HMRC state MTD will achieve the following benefits:

  1. Better use of digital information
  2. Tax in real time
  3. A single financial account
  4. The ability to interact digitally

Requirements under MTD

Those businesses who are required to comply with MTD for VAT will have two obligations – they must:

  1. Keep digital records of all transaction details, using software that is capable of linking directly to HMRC’s systems; and
  2. Report the VAT return data via that software directly to HMRC, within five weeks of the end of their VAT quarter.

Only the totals for each of the nine boxes on the VAT return will need to be reported. The business can report supplementary information on its transactions and the calculation of each total for the nine boxes, but this will not be compulsory.

Currently many businesses use spreadsheets and/or manual calculations to finalise their VAT returns. However, under MTD the expectation is that manual adjustments will need to be digitised. Once HMRC make the requirements clear, a review of the current process should be undertaken to make sure the submission of VAT returns is compliant moving forward.

The key test for being required to submit MTD for VAT will be if the business:

  1. Is VAT-registered
  2. Has taxable income in excess of £85,000

Preparing for MTD

Businesses that fall under the scope of MTD who do not currently use accounting software will be required to purchase one of the many options available on the market.

Other businesses may be required to either update their current software or, in limited circumstances, develop bespoke software in order to comply with the requirements set out by HMRC.

If you have any concerns over this transition, we at UHY have experts on hand to advise the best solution for your business.

The project remains a work in progress and will likely be complicated by MTD going live a couple of days after Brexit.

If you’re VAT-registered and need assistance, or aren’t sure if you’re going to be affected by this change, please don’t hesitate to contact me or your local UHY tax specialist.

Our VAT support service

Our VAT support service is a collaborative approach to supporting you with your day to day VAT queries. If this of interest, more details can be found here.