Making Tax Digital for business: VAT

Home- Year End Tax Planner 2019/20- Making Tax Digital for business: VAT

HMRC is phasing in its landmark Making Tax Digital (MTD) regime, which will ultimately require taxpayers to move to a fully digital tax system. Regulations have now been issued which set out the requirements for MTD for VAT. Under the new rules, businesses with a turnover above the VAT threshold (currently £85,000) must keep digital records for VAT purposes and provide their VAT return information to HMRC using MTD functional compatible software. 

The new rules have effect from 1 April 2019 where a taxpayer has a ‘prescribed accounting period’ which begins on that date, or otherwise from the first day of a taxpayer’s first prescribed accounting period beginning after 1 April 2019. HMRC has recently announced that the rules will have effect for some VAT-registered businesses with more complex requirements from 1 October 2019. Types of business within the deferred start date category include Trusts, VAT divisions, VAT groups and businesses using the annual accounting scheme. 

HMRC has recently opened a pilot service for businesses with straightforward affairs (i.e. those who will need to use the service from April) and the pilot scheme will be gradually extended for other businesses in the next few months.

Keeping digital records and making quarterly updates will not be mandatory for taxes other than VAT before April 2021.

Your BrighterThinking Next Steps

“Keeping digital records will not mean businesses are mandated to use digital invoices and receipts but the actual recording of supplies made and received must be digital. It is likely that third party commercial software will be required. Software will not be available from HMRC. The use of spreadsheets will be allowed, but they will have to be combined with add-on software to meet HMRC’s requirements. In the long run, HMRC is still looking to a scenario where income tax updates are made quarterly and digitally, and this is really what the VAT provisions anticipate.”

Sean Turner- Menzies VAT Senior Manager

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