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News added on 29.03.2018

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VAT regulations for MTD now law

If you blinked you could have missed it, the MTD for VAT regulations are now law. We now know what MTD for VAT is going to look like, and it seems a lot of it will be at HMRC's discretion. What’s the full story? 

What do the new regulations cover? The MTD for VAT regulations have recently become law, although they don’t take effect until 1 April 2019, and then only for businesses with turnover greater than the VAT registration threshold, currently £85,000. The regulations set out what digital records businesses will be required to keep for MTD, how VAT returns will have to be submitted and how the records must be “preserved”, i.e. stored.

Tip. Where your VAT return period spans 1 April 2019, the regulations won’t apply to you until the start of your next return period. This might give you a little breathing space, but we recommend you take steps to prepare for MTD for VAT as far in advance as possible.

The basic requirements. Broadly, if you use paper documents, e.g. invoices, in the day-to-day operation of your business, you can continue to do so, but the details of these must be recorded digitally using MTD compatible software. The VAT returns must be submitted digitally.  Most bookkeeping software will meet these requirements by 1 April 2019, but check with the software provider if you’re unsure. There are exemptions from electronic record keeping for religious or practical reasons, as well as for insolvent businesses.

Draft vs final regulations. The draft regulations were published at the end of 2017 and not much changed when they were made final. There’s a new let-out clause for businesses to which MTD for VAT has ceased to apply meaning that they can stop keeping VAT records electronically. There’s also now the proviso that where HMRC is satisfied that keeping and maintaining the specified information for each transaction is “likely to be impossible, impractical or unduly onerous,” it can vary the details which must be kept in electronic form.

What regulations don’t say. What the regulations don’t say is as important as what they do. There are noticeable gaps. For example, where you use more than one piece of software to keep your records, what constitutes acceptable digital links between them. Plus, there’s no mention of the soft-landing period for penalties. These omissions mean that MTD for VAT is going to rely considerably on HMRC’s discretion. Hopefully the MTD for VAT pilot which is now running will iron out these kinks before April 2019.

New HMRC guidance, including a VAT Notice for guidance, will be published “in due course”.

The new regulations apply from the start of your first VAT period commencing on or after 1 April 2019.  You can continue to use paper documents say, for invoicing but, subject to a few rare exceptions, the details must be recorded and kept digitally using MTD compatible software. All returns must be submitted to HMRC electronically, other than where the exceptions apply.

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