Making VAT Digital – What you need to know

From next year businesses whose taxable turnover exceeds the VAT registration threshold (£85,000 per year) will be required to keep their records digitally and report them on a quarterly basis.

In order to do this they will be required to use Making Tax Digital compatible software, and create the VAT return from that (or a combination of) software, for return periods starting on or after 1 April 2019.

Unfortunately, once under the new digital regime, businesses will have to stay in it even if their turnover later falls below the registration threshold.

Those below the threshold can opt in if they wish, but will otherwise remain on the existing system.

HM Revenue & Customs (HMRC) has indicated that there will not be an immediate change to the filing or payment deadlines but a reduction in the current one month and seven days to submit VAT return information is expected.

However, businesses will have the option to provide supplementary data voluntarily, which HMRC has suggested will have benefits for businesses.

Of course the move online means that companies will no longer be able to keep manual records, but HMRC has confirmed that they can use software or spreadsheets that are able to connect to HMRC via an Application Programming Interface.

Therefore, VAT returns must be submitted using software, and not by entering VAT return figures onto the HMRC portal, as is current practice.

When the new regime launches there will be no requirement to keep underlying records in a digital format, but the transactional information including the time and value of each supply, together with the applicable VAT rate will need to be recorded digitally.

The government has confirmed that businesses will continue to be able to use existing VAT schemes under MTD, including the flat rate scheme, cash accounting and annual accounting but the MTD requirements will vary for scheme users.

The plans to take VAT exclusively online using dedicated software is part of the wider Making Tax Digital plans put forward by the Government, which have already been delayed and subsequently watered down a number of times since they were first discussed in 2015.

The first phase, which has been called ‘Making VAT Digital”, is seen as a pilot for a wider scheme to cover other areas of taxation. This wider digital tax system is expected to come into force in 2020 at the earliest.

Whilst this article gives a general overview of the proposed system, we will bring you further details of the new regime in future newsletters.

If you are concerned about how Making VAT Digital will affect your record keeping and reporting, speak to our team at UK VAT Advice today!