HMRC has published some documents alongside the latest Finance Bill, which give us a little more insight to how making tax digital (MTD) may work in practice. There are two draft regulations on how the digital record keeping and reporting will apply for income tax, and an overview of legislation to implement MTD for VAT.
Certain businesses will have to start making quarterly reports under the MTD for VAT regime for quarters beginning on and after 1 April 2019. The affected businesses will be those who are VAT registered (in the UK) and have turnover equal to or in excess of the compulsory VAT registration threshold (currently £85,000).
The following businesses will not be required to enter the MTD for VAT regime, but may do so on a voluntary basis:
- businesses which have voluntarily registered for VAT;
- organisations which have turnover in excess of £85,000 but who are not required to be VAT registered, such as medical practitioners and local authorities;
- overseas traders who are registered for VAT in the UK as non-resident traders, but who have turnover in the UK under £85,000pa.
The businesses who are within MTD for VAT will have two obligations:
- a) keep digital records of all transaction details within software that is capable of linking directly to HMRC’s systems; and
- b) report the VAT return data via that software directly to HMRC, with no manual step, within 5 weeks of the end of their VAT quarter.
The deadline in b) aligns with the current VAT return filing deadline, but it will not perfectly align with the MTD for income tax deadline, which will be exactly one month after the end of the quarter for which the report is being supplied. Traders who use annual accounting scheme for VAT will only have to submit the MTD for VAT report once per year, as is currently the case for that scheme.
The information required to be submitted under MTD for VAT will be restricted to the totals reported in each of the 9 boxes on the current VAT return. Businesses will be able to report extra information concerning the transactions and the calculation behind those 9 boxes, but provision of this additional data won’t be compulsory.
As only around 12% of VAT registered businesses use accounting software to submit their VAT return directly from their accounting software to HMRC, with no intervening step (as required for MTD), the software producers have got a long way to go to bridge that gap.
There will be particular issues for VAT groups who need to combine information for a single VAT return from several companies, and for businesses who use any type of VAT scheme which requires adjustments to the accounting figures such as:
- Flat rate scheme (FRS)
- Tour operators margin scheme (TOMS)
- Cash accounting
- Capital goods scheme.
Please contact our office if you have any further queries.
For more information contact DFC accountants in Cardiff, Wales.