Making Tax Digital
VAT Goes Digital From April 2019
Making Tax Digital (MTD) only applies to VAT-registered businesses with an annual VATable turnover over the VAT registration threshold (currently £85,000). Those that are not VAT-registered or fall under that VAT registration threshold do not have to follow the MTD rules.
Keep UP-TO-DATE ON WHAT IS HAPPENING
What are the Foundations of MTD? Why do you need it?
HMRC has been pushing more and more towards digital recording and submission. We saw a shift in payroll with Real Time Information (RTI) and now they are moving VAT online. The four foundations they list at the heart of this move are:
- Better Use of Information – greater transparency and ability to share key data (for instance from employers, banks, building societies, and other government departments)
- Tax in Real-Time – Customers will not have to wait until the end of the year to know how much tax they need to pay, it will cut down on errors or repayments/tax due building up
- A Single Financial Account – By 2020 they aim to give customers a single view, comprehensive, the financial picture just as they can with online banking
- Interacting Digitally with Customers – it makes HMRC more flexible and accessible as customers can interact with them digitally at a time to suit them. The world is digital and HMRC is simply catching up with it.
There are a number of factors which are not as obviously advertised due their nature, however, it is important to keep them in mind.
These being:
- There will be more Submissions of Data Online – far more real-time transparency.
- Less room for errors or mistakes, although everything can be checked before submission, there will certainly be less privacy. Data goes straight into HMRC facing software rather than into spreadsheets that are then transferred to a digital space.
- Businesses will no longer be able to keep Manual Records – digital records must be maintained in what will essentially be a cloud environment.
- MTD for VAT will be launched at the same time as the UK is likely to leave the EU – There is a transitional period until the 31 December 2020 but what impact that may have on UK and EU vat transactions is still unclear.
So what are the MTD Rules for those that are not exempt?
Business Records
As I am certain you will have figured out by now it means that all information required for the VAT return must be kept digitally and you will need specific software that is compatible with this requirement. The information needed in relation to your business is:
- Business Information – Name, address, VAT number, VAT accounting scheme used.
For each VATable supply made by the business it must record:
- Time of Supply (Tax Point)
- Value of the Supply (net value excluding VAT)
- Rate of VAT Charged
What does and doesn't need to be Recorded?
The software will, presumably, calculate the amount of VAT charged so this does not have to be recorded. Transactions that do not affect the VAT return equally do not need to be recorded.
For each purchase which is relevant to the VAT return the business must digitally record:
- Time of Supply (Tax Point).
- Value of the Supply.
- Amount of Input Tax that the business will claim.
Partial Exemption / VAT Scheme
If you are a business that has partial exemption or uses a VAT scheme then you may not know exactly how much VAT you can reclaim on each invoice. In this case, you have the choice of recording:
- All the VAT paid; or
- None of the VAT; or
- The estimated amount of the recoverable VAT.
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GO LIVE DATE:
MTD for VAT went Live from
April 2019
However, the VAT notice has confirmed that the full service online will not be available. Businesses will not be able to support their VAT return with voluntary updates or supplementary data. These features will arrive later.
From April 2019, software that prepares a VAT return to send to HMRC must be MTD-compatible. This means that it can integrate with HMRC systems to send VAT returns to HMRC.
From April 2020, data must be exchanged digitally between all software used by a business for VAT. The information contained with the MTD VAT return will be generated by pulling information from the digital records.
APRIL 2019
VAT PHASE ONE
Who is affected?
- VAT Registered Businesses with a Turnover above the VAT Threshold (Currently £85,000.00 excluding VAT)
APRIL 2020
VAT PHASE TWO
Who is affected?
- The Remaining VAT Registered Businesses with a VATable Turnover under £85,000.00
APRIL 2020+
CORPORATION TAX & SELF ASSESSMENT
Who is affected?
- Sole-traders, Partnerships, Landlords and Trading Companies. The exact start date will be confirmed after the successful roll out of MVD
What Software Should I Use?
Rigel Wolf are in the process of testing the software options available – then we will be able to recommend a supplier. However, HMRC have allowed testing in their virtual environment to approve certain software choices.
Those choices have tested their products in HMRC’s environment and already demonstrated a prototype of their software to HMRC. In essence they are ahead of the rest of the field. There is already a lot of choice so you may be able to stick with a supplier you are already familiar with.
For more information on software take a look at this article from the ICAEW: https://www.icaew.com/technical/tax/making-tax-digital/software#vat
VAT is simply the next step in the Making Tax Digital Revolution. The more you can do digitally the better setup you will be when the changes come into force. There is no stopping this, the legislation has been passed and HMRC are rushing these changes through during a hectic economical period for the UK.
If you need any advice or wish to talk through your options then go get in touch with the Rigel Wolf team and we will give you the guidance you need.
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