Making Tax Digital and the new rules for VAT compliance

From April 2019 Making Tax Digital and the new rules for VAT compliance take effect. If you're a VAT registered business you need to be aware of these changes and how they might affect you.

Making Tax Digital and the new rules for VAT compliance

We've discussed Making Tax Digital previously and the various teething problems involved in it's implementation.

 Like the potential VAT impact of Brexit, the deadline for Making Tax Digital and the new rules for VAT compliance are fast approaching. If your business fails to adapt before the deadline, it could prove to be a costly and painful process.

​​​​So what are the new measures?

Under Making Tax Digital (MTD) for VAT, which is also known as 'Making VAT Digital' (MVD), your business will be required to use 'functional compatible' software in order to report VAT.

Because of this, you will also be required to keep digital records to support the VAT return information which you submit to HM Revenue through MTD functional compatible software. We discuss what needs to be included in your digital records below.

​​​Making Tax Digital and the new rules for VAT compliance - digital records

As previously mentioned, your records must be kept on functional compatible software and include the following details:

  • Your business name
  • Your principle place of business
  • Your VAT registration number
  • The VAT scheme that you use - for example the flat rate scheme, annual accounting
  • The VAT account for your business
  • Details of the time of supply and the rate of VAT used

The digital records must also be held within functional compatible software for up to 6 years from submitting the information. If you deregister for VAT you must keep records for up to 6 years following a VAT deregistration.

Making Tax Digital and the new rules for VAT compliance - functional compatible software

Whichever software you decide to use it must be capable of connecting to HMRC’s systems via Application Programming Interface (API). 

As a minimum the information submitted should include the details which are usually included in the current 9 VAT Return boxes. You'll also be able to voluntarily submit additional information. However, VAT accounting entries should only be submitted once.

Where more than one piece of software is used between entering data and then submitting it to HMRC, it will need to be capable of extracting/passing data from one to the other. This may mean using bridging software if necessary, to avoid physically typing the information in more than once.

So if you still wedded to your spreadsheets, you'll need to ensure there is software available to extract the information from your spreadsheet and then submit it to HM Revenue. Alternatively the information on your spreadsheet must be digitally linked to another piece of software that can submit it to HM Revenue. 

However why would you go through this aggravation?  It's far easier to submit the information directly via a third party software provider and it also reduces the likelihood of mistakes occurring.

Who has to join Making VAT digital?

If you're a VAT registered business whose taxable supplies exceed the VAT registration threshold in any 12 month period which ends or after 31 March 2019 then you are mandated into MVD.

If you are a VAT registered business whose VATable turnover does not exceed the VAT registration threshold you can elect to ignore the exemption (see below) and opt in to MVD.

Once you are mandated into, or voluntarily join MVD you remain in MVD until you either deregister for VAT, or are exempt (see below). You can't simply leave MVD because your VATable turnover drops below the VAT registration threshold at a later date.

Who is exempt from Making VAT digital?

As this only applies to VAT registered businesses, if you're not VAT registered then obviously you are not caught by MVD. The following businesses are also exempt from MVD:

  • You're a VAT registered business whose VATable turnover has not exceeded the VAT registration threshold in any 12 month period ending on or after 31 March 2019 (unless you've elected to join MVD (see above)
  • Practising members of certain religious society or orders
  • Businesses in insolvency
  • Where for reasons of age, disability or location HM Revenue accept it is not reasonably practicable to apply the rules.

What action do I need to take for Making Tax Digital and the new rules for VAT compliance?

One thing is for sure, working offline using paper or an excel spreadsheet just won't cut it once MVD takes effect. Amazingly a survey by a leading software provider has suggested that less than 12% of accountants in the UK are fully geared up for these changes. Many still have their clients working with paper or an offline system and appear to have been reluctant to embrace changes in technology. Just to reassure anyone reading this, our firm does not fall into this category!   

We have taken steps to adapt to Making Tax Digital and the new rules for VAT compliance by supporting our clients on either FreeAgent or Xero software. Both of these software providers are fully compatible with HMRC's systems and so for .

For more useful information, check out our Ebooks here.

And if you'd like to know how we can help you with all of this, or with anything else, feel free to give us a call on 01202 048696 or email us at [email protected].

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We work with businesses and contractors/freelancers who want to embrace the world of online software and the benefits this brings. Using technology to help our clients is at the core of everything we do.

So if you'd like to find out more, just give a call or drop us an email - no hard sell.

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Who we are

We're a small team with over 50 years experience of working with small businesses.

So we're in a unique position to understand the challenges that you face every day in your business.

And what's more, we're fully professionally qualified so you can be sure that your affairs are in safe hands.

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