Earlier this month, HMRC announced its detailed guidance for the introduction of Making Tax Digital (MTD) for VAT transactions which comes into force from April 2019. Whilst other elements of the wider Making Tax Digital project have been put on hold because of the need to focus on implementing changes as a result of Brexit legislation the requirement for VAT registered businesses maintain digital records is still progressing.
The guidance sets out in more detail exactly what HMRC expects by way of digital record keeping and also provides details of authorised/compliant software systems. Whilst most businesses already keep digital accounting records and manage their VAT transactions using the same software, the difference under Making Tax Digital is that the software which businesses use must:
- be capable of keeping and maintaining the records specified in the regulations
- preparing their VAT Returns using the information maintained in those digital records
- communicating directly with HMRC digitally via the Application Programming Interface (API)
There are very few businesses that will qualify for an exemption from the new MTD rules for VAT. The legislation applies to all businesses that have a taxable turnover that exceeds the VAT threshold, currently set at £85,000. Only businesses with taxable turnover that has never exceeded the VAT registration threshold will be exempt, along with a small number of businesses who, for one reason or another, cannot comply on religious or accessibility grounds. Even those businesses that are currently VAT registered, but subsequently de register because they fall below the threshold, will still have to make returns under MTD as they will have at one time, been subject to VAT.
Whilst MTD for VAT comes into force from 1st April 2019, businesses need only comply from their first VAT quarter starting on or after that date. However, the guidance does recommend being well prepared for the change and ensuring your systems comply in advance of your first MTD quarter.
For more information or detail about MTD for VAT, visit the HMRC site or contact us today.