Making Tax Digital for VAT: your questions answered
Making Tax Digital for VAT (MTDfV), the new regime for VAT record keeping and VAT return submission, is now live. All businesses with taxable turnover over the £85,000 VAT registration limit come within the new rules.
What are the digital requirements?
MTDfV means keeping specified records digitally, and filing all future VAT returns direct from your digital records. If you use more than one software product, HMRC requires 'digital links' between them. There are various ways this can be done, including the use of spreadsheets. Please talk to us for advice specific to your circumstances.
Businesses already using software to keep business records will need to check with their provider that products are MTD-compliant. Some businesses will need to change record keeping systems to comply. HMRC regularly updates a list of compliant software bit.ly/2VkaKKD. We should be happy to advise on choosing a software product, and what is meant by a 'digital link'.
Do all VAT-registered businesses start at once?
Each business has its own start date, dependent on its VAT quarters. If your taxable turnover is above £85,000, MTDfV rules are compulsory for your first VAT return period starting on or after 1 April 2019.
The only exceptions are for businesses in the deferrals category. These adopt MTDfV rules for their first VAT return period starting on or after 1 October 2019.
Which businesses are deferred?
These are businesses that are: part of a VAT group or VAT division, based overseas, trusts, not for profit organisations not set up as a company, local authorities, public corporations, those making payments on account, annual accounting scheme users, and those using the VAT GIANT service.
Such businesses should all have received written notification of their deferral status from HMRC.
What if my business is a voluntary VAT registration?
If your turnover is below the VAT registration limit, you don't have to enter MTDfV. You can carry on filing as you do at present. But if you prefer, you can join MTDfV voluntarily.
Are there penalties for getting MTDfV wrong?
MTDfV is backed up by penalties, but for the first year, HMRC will take a slightly more lenient approach on penalties for the issue of digital links between software products where businesses are genuinely trying to comply. Businesses are given until at least 31 March 2020 to put digital links in place between software products.
HMRC refers to this as a 'soft landing' penalty period. During this time, cut and paste will continue to be acceptable. Deferred businesses also have 12 months to become fully compliant here.
But there is a very important exception to this. Where VAT return information is transferred out of the accounting records into a separate program for submission to HMRC via the HMRC MTD Application Programming Interface, the transfer must be digital. This would apply, for example, where figures for the VAT return are collated in a spreadsheet and then transferred into bridging software for final submission. The transfer from spreadsheet to bridging software must use a digital link.
Does my business have to do anything to get into MTDfV?
Yes. A business actually has to sign up to MTDfV. This is done starting on the 'Sign up for Making Tax Digital for VAT' page on gov.uk bit.ly/2SOEQV1. You will need your Government Gateway user ID and password, and VAT registration number. HMRC should confirm, by email, that your sign-up has been successful. Confirmation should be received within 72 hours. Alternatively, we can sign up for you.
For HMRC guidance, see bit.ly/2VutWFR. Note that this is updated on an ongoing basis at present.
Are there other deadlines to watch?
Getting into MTDfV is a one-off procedure, but careful timetabling is involved.
When you have signed up for MTDfV, HMRC will expect all future VAT returns to be submitted via MTD software. It is thus very important that you have submitted any outstanding non-MTD VAT returns, and are ready to file all future returns with MTD software when you sign up.
If you currently pay VAT by direct debit, you cannot sign up in the 7 working days before or 5 working days after your VAT return is due.
In general, remember HMRC services can experience downtime. You can check whether there are problems with service availability via this link bit.ly/2HURhgm.
Can my business quit MTDfV if turnover falls?
Once a business is in MTDfV because turnover is over the taxable limit, it stays within MTDfV - even if turnover then falls below the limit. So the obligation to keep digital records and file VAT returns with MTD-compatible software continues. Only if the business qualifies for exemption or deregisters from VAT do the MTDfV rules cease to apply.
How we can help
As the new system takes effect, we should be delighted to advise on any aspect of MTDfV. We are also able to provide a full VAT return or book keeping service for you, including submission of VAT returns. Please do not hesitate to contact us for further advice.