A fundamental change to the way that businesses submit UK VAT returns is coming, with the introduction of the Making Tax Digital (MTD) for VAT programme scheduled for April 2019. All businesses with turnover above the UK VAT registration threshold, including businesses belonging overseas, should start preparing now, to ensure that they are able to fully comply with the new rules.
What is MTD for VAT?
MTD is a key part of HM Revenue and Customs’ (HMRC) plan to become a world leading digital tax authority. All businesses with a taxable turnover above the VAT registration threshold (currently £85,000 per annum) will be required to comply with the MTD rules. This includes overseas businesses making taxable supplies in the UK. Businesses with turnover below the threshold can opt to use the MTD rules. A business within the scope of MTD must use ‘functional compatible software’ to meet the new requirements. These new requirements are essentially to:
-Maintain digital business records
-File relevant VAT information electronically
VAT records will need to include a much wider range of information than currently required. MTD will also include a facility to submit supplementary data to HMRC. For example, additional information in support of a VAT repayment return. The expectation is that this access to data will allow HMRC to interrogate information directly and enable them to process VAT refunds and other queries quicker and more efficiently. What ‘functional compatible software’ will look like and what functionality it will have is still unclear.
When will my business need to be MTD compliant?
Businesses within the scope of MTD will need to comply with the new rules for VAT return periods starting on or after 1 April 2019. For example, if your business submits VAT returns for calendar quarters, you will need to comply with the MTD rules for the period ending 30 June 2019 onwards.
With the UK’s departure from the EU set for March 2019, Brexit may well impact on the MTD timeframes, but for the time being, it must be assumed that the new rules will come into force in April 2019. From 2020, other UK taxes are expected to follow suit.
In April 2018, HMRC commenced testing their MTD portal with selected VAT registered businesses and these trials will be expanded in the run up to April 2019 to include further businesses and software providers. These trials will allow HMRC and VAT registered businesses to better understand what the ‘functional compatible software’ will look like and what options will be available.
What are the benefits?
Ultimately MTD should lessen the burden on businesses by:
-Reducing paperwork and administration
-Easing pressure around tax reporting deadlines
-Allowing improved access to real-time information to aid cash flow planning
-Enabling more efficient processing of tax filings and related queries
How should my business prepare for MTD?
Although April 2019 is still some months away, businesses should start to prepare for MTD now, to ensure that suitable software and processes are well established and any teething problems addressed, well ahead of April 2019.
The first step will be to ensure that your business is using an online accounting package which will be ‘functional compatible software’ for MTD purposes. Where multiple software programs are used to record VAT data, such as spreadsheets, there must be a ‘digital link’ between each piece of software.
If you are considering moving your UK VAT accounting records to an online accounting package then there are key practical considerations, most significantly the timing of the process. It is most efficient to convert at your accounting period end – so if you have a 31 March year end, you should be thinking about conversion now.
If your VAT records are currently maintained on an online accounting package, this may be sufficient for MTD compliance when the requirements commence. However, you should speak to your accountant or software provider to confirm compliance ahead of the April 2019 deadline.
For further details or assistance with preparing for MTD, please contact a member of our Indirect Tax Group.