08 September 2018
From April 2019, businesses with annual taxable turnover of more than £85,000 will be required to maintain digital records for VAT and submit quarterly returns alongside the annual tax return. Under the requirements of MTD, any transfer of data between software programs must be carried out using digital software.
Businesses below the VAT threshold will not be required to use the system, although they can choose to voluntarily. However, once in the scheme, a business must remain within it while they are VAT-registered, even if their turnover falls below the VAT-registered threshold.
Digital Record Keeping
HMRC have stated that you do not need to keep any additional business records other than those in digital format. The software must record the time of supply, the value of supply and the rate of VAT charged.
If you want to continue to use spreadsheets, they must be able to communicate with HMRC through bridging software which must be purchased and implemented by April 2019.
Functions of Compatible Software
A business within the scope of MTD must use functional compatible software programs which can connect to HMRC systems via an application programming interface (API)
The functions of this software include:
- Preserving digital records in a specified digital form
- Creating VAT returns from the digital records and providing HMRC with this information digitally
HMRC has produced a list of software which is compatible with the MTD system.
HMRC is working with more than 150 software suppliers who have stated that they will provide software for MTD for VAT in time for April 2019.
If your taxable turnover is above the VAT registrations threshold you must follow the rules set out in the VAT Notice 700/22 by April 2019.
Exemptions may be granted in the circumstances below:
- Religious Societies
- Exemptions may be granted for a business which is run entirely by practicing members of a religious society whose beliefs are incompatible with the use of electronic communications
- Not Practical
- Exemptions may be granted for whom MTD is not reasonably practical for reasons of disability, age or remoteness of location.
If you need any assistance with Making Tax Digital (MTD) or wish to set up a computerised accounting system which will be MTD compliant e.g. Sage Business Cloud, give us a call.