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News added on 18.09.2017

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HMRC publishes Making Tax Digital draft legislation for VAT

HMRC has now published a draft of the legislation that will implement Making Tax Digital (MTD) for VAT. What are the key points?

Who does it apply to? The draft law confirms that from April 2019 all businesses (incorporated and unincorporated) will be required to keep their VAT records digitally, using MTD compatible software. Businesses trading below the VAT registration threshold (currently £85,000) will be exempt from keeping digital records but they can opt to use MTD on a voluntary basis if they wish.

Note 1. If a business is subject to MTD but its turnover later drops below the VAT threshold, it will still continue to keep digital records unless it cancels its VAT registration.

Note 2. VAT-registered businesses that are currently exempt from online filing for VAT due, for example, to religious beliefs, will also be exempt from MTD.

Deadlines. HMRC has confirmed that the MTD quarterly submission dates can be linked to a business’s existing VAT return periods. The draft law also confirms that the one month and seven day after the quarter end deadline will be retained under MTD at least until it is extended to cover income as well as VAT.

What information needs to be reported? HMRC says that the MTD VAT submission will, as a minimum, require the same information as is needed to complete the current VAT return’s nine boxes. However, HMRC will encourage voluntary submission of other information contained in the digital accounting records to test the practicalities and potential benefits of doing so.

Will HMRC be providing free VAT software? This is the big change - there will be no free HMRC product. So businesses currently using HMRC’s VAT online service will need to use MTD compatible commercial software to file VAT returns from April 2019. If businesses currently use accounting software to keep their records, then the software provider should be updating their product to ensure the software includes a facility to make the MTD VAT submissions.

How will errors be corrected? HMRC says that if a business discovers an error, then all it needs to do is adjust the relevant sales or purchase record in the MTD-compatible accounting software and the change should be pulled through to the next VAT submission.

All businesses over the VAT registration threshold will need to make MTD submissions for VAT from April 2019. While the draft law confirms that these will be similar to the current VAT returns, businesses won’t be able to file them using HMRC’s VAT online service and will need to use a commercial software alternative instead.

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  • Tony Court (Editor in Chief) - 19 May 2019

    Thanks for your question William. MTD is only obligatory where "taxable turnover" exceeds the registration limit. This means only VATable supplies are taken into account. Therefore, the value of exempt supplies, e.g. income from letting property for which an option to tax has not been made or is otherwise not VATable, and those outside the scope of VAT, are ignored.

  • William  Shaw - 18 May 2019

    If the trading turnover is below #85,000 but the non trading turnover say property rents is much higher. will the business have to be registered for MTD. This is not explained in your advises.