HMRC have issued guidance on the requirements for businesses to keep digital records and submit returns using functional compatible software.
The legislation for new requirements for businesses to keep digital records and submit returns using functional compatible software was published in February and comes into force from 1 April 2019. HMRC have now published guidance. This includes the publication of Notice 700/22 ‘Making Tax Digital for VAT’. The Notice confirms that the new rules will apply to VAT return periods starting on or after 1 April 2019. It goes on to provide guidance on digital record keeping requirements and on the submission of returns using functional compatible software including examples of where a digital link is required.
Notice 700/22 ‘Making Tax Digital for VAT’ provides guidance on a number issues. In particular:
Digital record keeping requirementsOne concern surrounded the requirement to record digitally the amount of deductible input tax for every purchase. For example, a partly exempt business would not know this figure at the time of making the purchase. This has been resolved by a simplification which will allow a business to digitally record all the VAT, no VAT or an estimated percentage. The actual VAT deductible will then be an adjustment that can be performed outside of the functional compatible software and the total of each type of adjustment recorded digitally. The Notice also confirms that when errors are corrected and notified to HMRC there is no need to amend the underlying digital records. There are other simplifications involving recording mixed rate supplies with a single price, invoices for multiple supplies, as well as employee expenses. However, reverse charge supplies may have to be recorded twice, as a sale and purchase, depending on the software used.
Submission of returns using functional compatible software
In terms of what is considered to be a digital link, the Notice confirms that simply ‘cutting and pasting’ is not a digital link but ‘linked cells’ in spreadsheets are. The Notice also confirms that the scope of the one-year soft landing period means that before 1 April 2020 businesses will not have to have digital links between their various functional compatible software programmes. However, the transfer of the VAT return data to bridging software that submits the return to HMRC must be digital. The Notice goes on to provide examples of where a digital link will be required.
The Notice confirms that these changes will become effective from April 2019. To access the full guidance collection published by HMRC, click here.
Please speak to your usual KPMG in the UK contact if you would like information on a diagnostic analysis that will pinpoint the changes needed in order to be Making Tax Digital (MTD) VAT compliant or details of KPMG in the UK’s technology solutions. These include a cloud-based MTD bridging tool that will enable VAT returns to be submitted to HMRC (this functionality is also being incorporated into our PX Cube VAT compliance product which was developed specifically for the FS sector) and an indirect tax reporting application called OITC, developed by Thomson Reuters, which is an automated solution for producing and filing VAT returns. This will have the necessary MTD digital links to enable the return to be submitted directly without the need for bridging software.
For further information please contact: