Making Tax Digital for VAT

From April 2022 onwards, it is compulsory for all VAT registered businesses to submit returns to HMRC via MTD compliant accounting software, and to maintain digital records to support the returns submitted. MTD was originally introduced by HMRC in 2019 but was only compulsory for those businesses with annual taxable turnover above £ 85,000; this initial concession for smaller businesses is now withdrawn.

The precise timing of the introduction is as follows;

• If you submit monthly VAT returns, the 04/19 period is the first MTD return;
• If you submit quarterly returns ending March, 06/19 period is the first MTD return
• If you submit quarterly returns ending February,  08/19 return is the first MTD return
• If you submit quarterly returns ending January,  07/19 return is the first MTD return.

Businesses with taxable turnover less than £ 85,000 have a choice.  Either continue to submit returns via the HMRC website or voluntarily choose to submit using enabled software.  Once a VAT return is submitted by the MTD route, all future returns must follow this path.

No changes are to be made to;

• The underlying VAT rules;
• The amount of information submitted to HMRC each quarter;
• The current filing and payment deadlines.

Initially only the figures for the 9 boxes of the VAT return will be submitted to HMRC, but it is likely in the future that some supplementary data will be required also.  The enabled software will also be able to receive messages and information from HMRC, and will provide access to the VAT account and historical data, mimicking the current online data on the HMRC website.  Acknowledgement of the submission of the return will be provided through the software.

All the established software providers have amended their products to allow submission of the return direct from their software and obtained prior approval from HMRC that their product meets the technical specifications.  HMRC have produced a list of approved software providers (45 to date) which includes Xero, Sage and Quickbooks amongst several others.  Please be aware that not all the existing Sage products include the function to submit VAT returns from the software, and therefore require purchase of a separate piece of enabling software.

Digital records do not have to be maintained within a single programme or application, but once data is captured into one package or programme and moved to another package, the transfer of the data must be made digitally.  So for example it is not acceptable to “cut and paste” a list of retail sales from a spreadsheet to an accounting programme, but it is acceptable for example for data to be transferred from one spreadsheet to another by way of a digital link between the cells. Some spreadsheet providers have already updated their products and obtained HMRC approval, so that the spreadsheet can combine with accounting software or it can be used to keep digital records and then directly submit the VAT return digitally to HMRC.

HMRC recognise that there may be points during preparation of your VAT return when calculations are made outside of any software, for example a Capital Goods Scheme adjustment or a Partial Exemption calculation, and the outcome then input by hand into the software that will send the return to HMRC.

What can we do for you?

If you use one of the well-established accounting software providers, the switch to MTD is likely to be relatively straightforward.  You may consider that MTD is an opportunity to update your processes around production and submission of the VAT return.  If you currently maintain manual records or solely use spreadsheets, the introduction of MTD will require changes, which you should make as soon as possible before April 2019.  We can help you to ensure that you are compliant with MTD before it goes live, and recommend software which will most suitable for your business.

If you have any questions or concerns about MTD, please contact the VAT team at James Cowper Kreston.