Getting Ready for Making Tax Digital

07 February 2019

VAT registered businesses with a taxable turnover above the VAT threshold (£85,000) will have to keep digital VAT records and submit VAT returns using Making Tax Digital (MTD) compatible software from April 2019.

Deferral of start date for more complex businesses

MTD for VAT will not be mandatory until 1 October 2019 for businesses that fall into one of the following categories:

  • VAT groups
  • ‘Not for profit’ organisations that are not set up as a company;
  • VAT divisions
  • Trusts
  • Public sector entities required to provide additional information on their VAT return (such as Government departments and NHS Trusts)
  • Local authorities;
  • Public corporations;
  • Traders based overseas;
  • Those required to make payments on account
  • Annual accounting scheme users.

What does this mean for my business?

From April 2019, affected businesses will no longer be able to submit their VAT returns through the government gateway. Business will be required to use MTD-compatible software which prepares a VAT return and sends it to HMRC. To be MTD-compatible, the software must integrate with HMRC systems to send VAT returns to HMRC.

Where can I find MTD compatible software

HMRC is working with more than 150 software suppliers who have said they’ll provide software for MTD for VAT in time for April 2019. Of these, software suppliers who have tested their products in HMRC’s test environment and have already demonstrated a prototype of their software to HMRC have been approved under MTD for VAT.

These software suppliers are listed by HMRC and can be viewed via this link - https://www.gov.uk/guidance/software-for-sending-income-tax-updates#VAT

I currently use excel spreadsheets to maintain my records - What do I do?

HMRC now permits the use of Excel spreadsheets provided it is used in conjunction with software that is capable of taking the relevant information from the spreadsheet electronically and sending it to HMRC. This has been a welcome development for many businesses, who prepare there VAT returns on a spreadsheet, because they may need to do a partial exemption calculation and/or other VAT adjustments.

I currently maintain my records manually

Manual records will no longer be acceptable to HMRC from 1 April 2019. You will need to make a decision as to which software (including Excel) is suitable for your business. Please get in touch with your local MHA MacIntyre Hudson adviser to discuss your options. We advise swift action if your business falls into this category. It will not be desirable to switch to software mid-way through an accounting period in order to be MTD compliant. Switching at the start of the accounting period beginning immediately preceding 1 April 2019 will ensure a much smoother transition, so please speak to us as soon as possible.

Exemptions from MTD for VAT

There are a small number of VAT-registered businesses that will be exempt from submitting VAT returns digitally and will be able to continue using the government gateway. They are as follows:

  • VAT-registered businesses with taxable turnover below the VAT registration threshold as at 1 April 2019 (currently £85,000). However, you will need to keep an eye on your taxable turnover. As soon as you exceed the threshold, the MTD for VAT rules will apply.
  • Your business is run entirely by practising members of a religious society whose beliefs are incompatible with the requirements of the regulations (for example, those religious beliefs prevent them from using computers).
  • It is not reasonably practicable for you to use digital tools to keep your business records or submit your returns, for reasons of age, disability, remoteness of location or for any other reason.
  • You are subject to an insolvency procedure.

I don’t use compatible software, are there any solutions?

There are solutions available for you:

  • You can appoint an agent to submit your VAT return via compatible software. MHA MacIntyre Hudson provide this service. All you need to do is to submit your VAT return information to us on a spreadsheet. We do the rest.
  • You can use compatible software in a similar way to the above solution. You would submit your VAT return information from this software. It would be used solely for VAT return submission.
  • There are API enabled spreadsheets available which you can purchase.

What is HMRC’s long term objective?

HMRC have confirmed that they will not require more sophisticated digital links until 2020 at the earliest. Therefore, businesses must look for longer term solutions if spreadsheets are currently used to prepare and submit VAT returns.

HMRC’s longer term view is that VAT compliance will be managed by them digitally and remotely.

Contact us

For advice on implementing digital systems or for further information on what MTD means for you, please contact Alison Horner or Jon Higginbottom.