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Making Tax Digital: Changes to VAT reporting from 2019

Tim Woodgates

From April 2019, as part of the Government’s Making Tax Digital (MTD) programme, VAT registered businesses with taxable turnover above the VAT registration threshold (currently £85,000) will have to keep their records digitally (for VAT purposes only) and submit their VAT return information to HMRC digitally through ‘MTD functional compatible software’.

If you are VAT registered and don’t currently use a digital accounting package (such as Sage, Xero or QuickBooks) to record your VAT information (e.g. invoices to customers and from suppliers), you need to start planning for Making Tax Digital now.  Moore can provide further information about the various software options available, and help you decide which is the best option for your business.  We can also provide support with the installation and training on how to use the software.

Who is affected by MTD for VAT?
Businesses that are VAT registered with taxable turnover above the VAT registration threshold (currently £85,000) will be required to submit digital information to HMRC under the MTD for VAT regime. 

Businesses voluntarily registered for VAT but with taxable turnover under the VAT registration threshold will not be subject to MTD for VAT.

The requirement still applies even if the taxable turnover of the business subsequently falls beneath the VAT registration threshold.  The requirements of MTD for VAT only cease to apply if you deregister from VAT.

When does Making Tax Digital for VAT reporting come into effect?
MTD for VAT will apply to VAT return periods starting on or after 1 April 2019.

Will VAT reporting & payment dates change?
Submission dates and payment dates for VAT are not currently expected to change.

Monthly and annual VAT return schemes will continue to be submitted on the same basis as previously but will need to keep and submit digital records.  This also applies to businesses that operate the Flat Rate Scheme for VAT.

Can I be exempted from MTD for VAT?
Businesses are exempt from MTD for VAT if in the previous 12 month period they had taxable supplies beneath the VAT threshold and in that previous 12 months were not already part of the MTD for VAT regime.

Further exemptions are available on the grounds of incompatibility with religious belief, disability, or if the businesses is in insolvency procedures.

What are the requirements for MTD for VAT reporting?
Businesses must use “functional compatible software” to submit digital information to HMRC.  In simple terms this means some form of computerised bookkeeping software or cloud accounting package must be used to connect to HMRC to submit information to them.  Spreadsheets are allowed but only in conjunction with some kind of digital platform to submit the information HMRC.

How will this change the normal VAT return procedure?
The VAT return will be populated with information directly obtained from the underlying digital records.  The return will still look the same as it has previously done with its normal nine boxes, but behind these figures will be supplementary information providing a summary to HMRC of the cost types incurred, such as totals for rent and rates, motor expenses, etc. 

The penalty regime for failing to keep digital records will correspond to the existing regime for failing to keep adequate records for VAT purposes.

What happens if I make errors on the VAT/MTD return?
HMRC say that the current procedure for notifying HMRC of any errors made on a VAT return will remain the same i.e. correct on the next return or submit a form VAT652 depending on the size of the error.  There are plans for HMRC to introduce an electronic channel for notifying but until that point, the existing procedures should be adopted.

Anything else I should know?
The Government intend to have all requirements for MTD for VAT fully legislated by April 2018 which will allow a full 12 month run-up for software providers and taxpayers to prepare for the changes. 

Businesses will not be required to keep digital records or provide quarterly updates for HMRC for other taxes until at least April 2020.

The proposed legislation states that taxpayers are permitted to submit information more frequently than their current VAT cycle should they wish.  For many, this is unlikely to cause great excitement, but for those keen to get on with new regime there is already a pilot programme ongoing where MTD for VAT can be experienced before April 2019.

Watch our Making Tax Digital for VAT webinar to find out more. 

For further information about VAT reporting, Making Tax Digital or accounting software packages, please contact your local Moore office.