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VAT: Making Tax Digital – draft VAT Regulations and Notice

VAT-Making Tax Digital-draft VAT Regulations and Notice

Ahead of the first phase of MTD to be implemented from April 2019, HMRC have released draft MTD VAT Regulations and a Notice for consultation.

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HMRC have released for consultation the draft Making Tax Digital (MTD) VAT Regulations, together with a draft notice and some examples which outline the extent of the required digital links for businesses that currently have different digital record keeping options. From 1 April 2019, nearly all VAT registered businesses with a taxable turnover above the £85,000 VAT registration threshold for UK established businesses will have to comply with MTD for VAT. There are very few exemptions. Businesses have been anxiously awaiting the draft law to see what will be required of them and what they will need to do to be compliant. It does look as though HMRC have listened and acted on some of the concerns previously voiced.

MTD VAT involves two stages – the keeping of digital records and the digital submission of the VAT return via functional compatible software. One aim of MTD VAT is to reduce the VAT lost through errors and mistakes arising from businesses keying in figures manually.

The guidance confirms certain points that businesses with VAT accounting complexities such as partial exemption were wanting to know. These include:

  • Only some records have to be kept digitally within functional compatible software.
  • The complete set of required digital records do not all have to be in one piece of software as long as there is a digital link between the different pieces.
  • Only the following has to be kept digitally though HMRC stress that digital links for other entries (such as fuel scale charges) will reduce the chance of errors and so HMRC would clearly prefer as much data as possible to be kept and transferred digitally:
    • Business name, address, VAT number and any special accounting schemes used;
    • The VAT account (the information in this will be used by the software to calculate and fill in the return);
    • Total of any adjustments (not the calculations underlying them);
    • Time of supply, value of supply and rate of VAT charged on supplies made;
    • Time of supply and value of supply for purchases and the amount of input tax that will be claimed;
    • The total value of outputs for the period broken down into the different VAT rates (standard, reduced, zero, exempt and outside the scope) – this has been significantly scaled down from original proposals; and
    • Daily Gross Takings (DGT) - for retailers using a retail scheme.
  • Those using the Flat Rate Scheme and the Gold Special Scheme are covered by additional requirements.  

The guidance confirms that partial exemption adjustments can therefore be carried out outside the digital records and transferred in manually, if desired. This was an issue that had been causing concern. The guidance also confirms a ‘soft landing period’ of a year, during which record keeping penalties will not apply and there will be no mandatory digital link between non API enabled software and (e.g.) a collating spreadsheet. There will however, have to be a digital link from the outset between the spreadsheet and the bridging software that submits the return digitally.

MTD will be a significant change. However, this will depend on what businesses currently do digitally. It is therefore useful to have this guidance to see what HMRC will insist on and where there is some latitude, at least for a while. This may help businesses start to make decisions about what they need to do – some larger businesses may need to do very little, while other smaller businesses whose records are less digital may require a more radical overhaul of their record keeping. The key thing to remember is that from April 2019 certain records have to be kept digitally within functional compatible software and for those in MTD the return can only be submitted via an API, which may be from API enabled software, bridging software or API enabled spreadsheet.

To access the draft regulations click here and explanatory memorandum here.
To access the draft Notice click here and for the addendum to Notice here.

For further information please contact:

Karen Killington

Steve Powell

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