Records required for Making VAT Digital
Whilst the progress of Making Tax Digital has been subject to continuous delays and massively increased costs, it's counterpart Making VAT Digital has been operational for a number of years. Whether you are an established or a startup business it's important to understand those records required for Making VAT Digital. We've provided an overview previously and this time we're going to focus on this topic in greater detail.
Who needs to comply with these rules?
Essentially if you are a VAT registered business you are now within the scope of the Making VAT Digital regime whether your taxable turnover exceeds the threshold or not - for example where you have voluntarily registered. You will therefore be required to adhere to HMRC's record keeping requirements.
Are there any exceptions?
Even if your taxable turnover falls below the VAT registration threshold having exceeded it you'll still need to keep the records required for Making VAT Digital regime, unless you deregister for VAT, or fall within one of the following exemptions:
Digital records required for Making VAT Digital
Some of your business records must be kept digitally, with functional compatible software (see further on in this article). However there are some records that need to be retained in their original format to enable recovery of VAT - for example the forms C79 (import VAT certificates).
The following data detailed below, must be kept digitally:
What is functional compatible software?
Essentially functional compatible software is a program that can record and preserve digital records. Provide HMRC information and returns from data held in those records by using the Application Programming Interface (API) platform and receive information from HMRC via the API platform. Typically this would include Making VAT Digital bookkeeping software - for example FreeAgent and Xero.
There must be 'Digital Links' between these software programs or applications where more than one part of the software makes up the digital data submitted to HMRC.
HMRC accept that digital links include the following:
Unfortunately you can't enter data into a spreadsheet, then manually copy this into a different bit of software because no digital link exists. Essentially there can be no manual involvement in re-entering data from one source to another. Cutting and pasting is not a digital link. Although HMRC acknowledge that some manual calculation adjustments may be required. For example, the VAT Flat rate scheme.
Digital records and accountants
You can authorise HMRC to receive data from and send data to your accountants. Once your accountants are authorised, they can sign up your business to the MTD service and use software to create, view, edit, and send data to HMRC.
Your accountant can also be authorised to keep and maintain digital records on your behalf. You will not need to re-authorise an accountant already authorised to receive your VAT returns. However your accountant will need to sign up to the Agent Services Account.
The importance of maintaining records for Making VAT Digital
At the risk of stating the obvious, accurate business records are fundamental for the effective running of your business. They provide a clear snapshot of your business's financial health and activities. Equally importantly keeping good records will reduce the risk of missing VAT filing deadlines. Filing VAT returns on time is particularly important now HMRC have introduced a harsh new VAT penalty regime.
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].
Alternatively, please feel free to complete our Business Questionnaire here.