The countdown to 1st April has begun: Are you ready for the digitalisation of VAT?

2 March 2019| CATEGORIES: Making Tax Digital| TAGS: Making Tax Digital, MTD

With Making Tax Digital (MTD) for VAT coming into force in less than a month, businesses that have not yet decided on a software solution need to act now to meet the new digital requirements applicable from 1^st April.

As the timing coincides with the UK’s departure from the EU at the end of March, there is even more pressure to ensure that business plans are agreed and implemented in advance of the roll-out.

Below we recap on the key requirements of MTD for VAT to help your business prepare for the new regulations.

Who do the MTD for VAT rules apply to?

Under the UK Government’s Making Tax Digital for VAT initiative, all VAT-registered businesses with a taxable turnover above the UK VAT threshold (currently £85,000) are required to keep VAT records digitally and use software to submit their VAT returns.

As well as UK businesses, the new rules impact overseas businesses whose VAT-taxable (i.e. standard rated, reduced rate and zero rated) UK sales exceed the UK VAT threshold.

Businesses exempt from MTD for VAT, for example where their taxable turnover is below £85,000, may voluntarily opt in. This can be done by contacting HMRC in writing before the start of the first VAT period from which a business wants to report under the new rules using the MTD service.

What are the MTD for VAT requirements?

Businesses impacted by the regulations will be required to:

• use software to store certain VAT records digitally;
• submit VAT returns from those digital records by using MTD-compliant software; and,
• ensure digital links exist between all software products used by a business to compile the VAT return, maintaining a clear audit trail.

Further information on the requirements is available in HMRC’s VAT Notice 700/22 published in July 2018, and our earlier blog article.

When do the new rules take effect?

For most businesses the new rules apply from the first VAT period starting on or after 1^st April 2019.

For a minority of more complex businesses, including overseas businesses, compliance has been deferred to the first VAT period starting on or after 1^st October 2019.

Digital links between all software products used to compile the VAT return, including spreadsheets where applicable, will not be mandatory until April 2020 (October 2020 for the deferral group).

The deferral group

The deferral group that will be subject to the new rules from 1^st October 2019 include traders based overseas, ‘not for profit’ organisations that are not set up as a company, trusts, VAT divisions, VAT groups, public sector entities that are required to provide additional information on their VAT return (e.g. government departments and NHS Trusts), local authorities, public corporations, those required to make payment on account and annual accounting scheme users.

HMRC has written to all businesses within the deferral group to confirm that they fall into the category.

Exemptions from the new rules

A business will not have to follow the MTD for VAT rules if HMRC are satisfied that any of the following apply:

• The business is run entirely by practicing members of a religious society whose beliefs are incompatible with the requirements of the regulations (e.g. if their religious beliefs prevent them from using computers); or,
• It is not reasonably practicable to use digital tools to keep the business records or submit returns, for reasons of age, disability, remoteness of location or for any other reason; or,
• The business is subject to an insolvency procedure.

Businesses that fall into the above categories must contact HMRC’s VAT Helpline to discuss alternative arrangements.

Available software

HMRC is not providing a free software solution for submitting VAT returns, however a list of compliant software is available on the Government’s website here.

In addition, a number of these software solutions offer digital VAT record storage.  Alternatively, under the MTD for VAT rules, spreadsheets are permitted to digitally record and preserve VAT records.

Where a combination of digital solutions are used to meet the requirements of MTD for VAT, there must be a digital link between them from April 2020 (October 2020 for the deferral group).

Using an agent to submit your VAT return

Under MTD for VAT, an authorised agent can submit VAT returns on behalf of a business. To do this, the agent must have access to the software that holds the business’ mandatory VAT records.

With April’s Making Tax Digital for VAT roll-out fast approaching, businesses need to act now to ensure that compliant software is in place to meet the requirements of the new regulations.

Please get in touch for more information, assistance in preparing for Making Tax Digital for VAT, or if you would like us to act as your agent and submit your VAT returns using our MTD-compliant software solution.