Making Tax Digital

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.

There will be a ‘soft landing period’ for one year following the mandatory date of entry into MTD, during which time the businesses should prepare to have all digital links in place within their business records. You must have these links between the software you use by 31 March 2020, unless HMRC sent you a letter to tell you that your business is in the deferral group. If a business is in the deferral group, it must have links between the software used by 30 September 2020.

It is likely that many businesses, large and small, will find the implementation of the digital links required by MTD a challenge within this 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. On 17 October HMRC announced that businesses with complex or legacy IT systems can 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 have issued VAT Notice 700/22: Making Tax Digital 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.