Making Tax Digital for VAT - are you ready?

From April 2019 the proposed introduction of Making Tax Digital for VAT is going to mean that businesses that are registered for VAT and have turnover above the VAT registration threshold of £85,000 will be required to keep digital records for VAT purposes and submit their VAT return to HMRC via MTD compatible software.

What is Making Tax Digital (MTD)?

MTD was first announced by the Government in 2015 with the aim of improving the efficiency and effectiveness of the UK tax system across all taxes.  They also claimed it would simplify tax, which is very much a matter of opinion. A

s a result of consultations and feedback the vast majority of the changes to be implemented by MTD have been put back until at least 2020, possibly indefinitely.  However, they are going ahead with the changes to VAT starting from April 2019.

Making Tax Digital for VAT - the requirements

Making tax digital for VAT means that for the first quarter starting after 1 April 2019 VAT registered businesses, both limited companies and sole traders, will need to maintain their VAT records and make their VAT submissions digitally.

One important point around MTD for VAT is that HMRC have confirmed that spreadsheets will be an acceptable form of digital record keeping, but that these spreadsheets will need to digitally submit the VAT return and there will be no manual entry allowed.  The details of how the link between spreadsheets and digital submission will work are still to be confirmed.  So, if accounting software is not for you it will still be possible to use spreadsheets for your VAT records.

There are many benefits to accounting software, in particular the new cloud solutions which have made such software far more affordable and accessible including our partners at Xero.  If you are interested in a Xero cloud accounting solution and how it can help you comply with MTD please get in touch.

Whilst HMRC have indicated there will be a soft landing period with leniency shown on penalties, once the system is up and running there will be penalties for non-compliance, with the system likely to be a points based model with taxpayers being penalised a point each time they fail to submit on time.  So if you are VAT registered and have turnover over the VAT threshold you do need to ensure you have a compliant VAT records system by April 2019.

We can support you through the MTD for VAT process and also help with the compatible software if this is the route you decide to take.  We will send further updates once HMRC confirm the mechanics for those who decide to keep using spreadsheets and can also provide support to those wishing to take that route.

If we can provide assistance on Making Tax Digital for VAT, or any other VAT matters, please contact me on 0113 398 1157 or email mtbarton@hwca.com

Read more on Making Tax Digital for VAT on the Government's website