Making Tax Digital (MTD)

Most businesses whose taxable turnover exceeded the VAT registration threshold at any time after 1 April 2019 are now required to keep their records digitally, using MTD functional compatible software (which will allow HMRC to upload VAT return data).  MTD for VAT is also now mandatory (since 1 October 2019) for businesses falling into one of the following categories(the ‘deferral group’) considered by HMRC to be ‘more complex’ businesses:

  • Trusts
  • ‘not for profit’ organisations that are not set up as a company
  • VAT divisions
  • VAT groups
  • local authorities,
  • public corporations,
  • traders based overseas,
  • those making payment on account, and
  • annual accounting scheme users

On 17 June 2019 HMRC announced that for those organisations who  use the GIANT (Government Information and NHS Trust) service, the deferral period would be further extended. HMRC has not announced the new mandation date for these organisations as yet.

Businesses with a turnover below the VAT registration threshold or registered on an ‘intending trader’ basis will only be subject to MTD rules from the beginning of the VAT return period following the date when their taxable supplies breach the VAT registration threshold.

Initially there was to be a  ‘soft landing period’ for one year, ending on 31 March 2020, following the mandatory date of entry into MTD, during which time most businesses were to put all digital links in place within their business records.

However, due to the Covid-19 crisis HMRC has announced that businesses now have until their first VAT return period starting on or after 1 April 2021 to put digital links in place. This is a 12 month extension.

It is still likely that many businesses, large and small, will find the implementation of the digital links required by MTD a challenge, even within this new time frame and it is important to begin preparations as soon as possible. Constable VAT can help you identify any weaknesses in your current system giving you time to resolve the problem or to request more time from HMRC. HMRC are continuing to allow businesses with complex or legacy IT systems to apply for additional time to put the required digital links in place, subject to meeting certain qualifying criteria. If a business qualifies then the additional time will be granted as a specific direction. Constable VAT can assist with preparing a case for the issue of a direction.

HMRC issued an updated VAT Notice 700/22: Making Tax Digital on 7 April 2020 which offers explanations to some of the questions surrounding the initiative.

The Notice explains which records must be kept as well as ways to digitally record transactions when required.  It also sheds some light on what constitutes “functional compatible software” and some of the issues which may arise where a combination of programs is used and where these may or may not require to be digitally linked with one another.

The following publications may also be useful

If any doubt arises around the way in which your organisation may be affected by Making Tax Digital then please do not hesitate to contact Constable VAT at any time.