VAT-registered businesses with a taxable turnover above the VAT threshold are required to use the Making Tax Digital (MTD) service to keep records digitally and use software to submit their VAT returns from 1 April 2019.
The exception to this is a small minority of VAT-registered businesses with more complex requirements. As part of planning for the VAT pilot, HMRC consulted with various stakeholders and took the decision to delay mandation for these customers until 1 October 2019 to ensure there is sufficient time to test the service with them in the pilot before they are mandated to join.
The revised timetable for implementing MTD for VAT is now as follows:
April 2019 – MTD mandated for all customers (except those that have been deferred)
October 2019 – MTD mandated for customers that have been deferred. The 6-month deferral applies to customers who fall into one of the following categories:
- ‘not for profit’ organisations that are not set up as a company
- VAT divisions
- VAT groups
- those public sector entities required to provide additional information on their VAT return (Government departments, NHS Trusts)
- local authorities
- public corporations
- traders based overseas
- those required to make payments on account
- annual accounting scheme users
HMRC have published an updated version of their Making Tax Digital Mythbusters factsheet. The ‘myths’ and HMRC’s comments covered in the factsheet are summarised as follows:
Businesses don’t know it’s happening or what to do: HMRC state that over 80% of businesses had started to make preparations for MTD by December 2018
Everyone will have to join the service by 1 April: Businesses are required to join MTD and submit their VAT returns using the new service for their first VAT period which begins on or after 1 April. For the majority, who file quarterly, their first MTD returns won’t be due until August or later
Under MTD, businesses will have to provide more information than they already do: Businesses will need to provide information to HMRC more regularly than they do now
MTD won’t reduce errors: HMRC maintain that the integrated approach offered by MTD will, in the long term, reduce reporting errors
HMRC have underestimated the admin burden and costs to businesses for MTD: Costs will differ from business to business but there are MTD-compatible solutions available at no or low cost for most businesses
Businesses can’t use spreadsheets as part of MTD: Businesses can choose to use spreadsheets to both maintain digital records and perform tax calculations, provided the spreadsheets combine with some form of ‘bridging’ software that will allow their VAT return data to be sent to HMRC from the spreadsheet
Small businesses should be automatically exempt: Only those with taxable turnover above the VAT threshold of £85,000 are required to join MTD, although the c.1m VAT registered businesses below the threshold can choose to join voluntarily.
HMRC will penalise me if I get the new process wrong: During the first year of mandation HMRC will take a light touch approach to digital record keeping and filing penalties where businesses are doing their best to comply with the law.
For further information on MTD, see the GOV.uk website here.