Making Tax Digital for Motor Dealers - Time to take action
MHA MacIntyre Hudson’s market leading motor team is comprised of skilled specialists from different areas who provide a full range of accountancy, tax and advisory services to dealers and manufacturers. The team is led by Steve Freeman (National Head of Motor) a former Big 4 Audit & Client Service Partner for both car dealers and automotive manufacturers. Glyn Edwards whose experience in tax and VAT has given him vast background knowledge on not only VAT litigation and dispute resolution but also Making Tax Digital for motor dealers.
From 1st April 2019, all VAT-registered dealers, and any associated businesses with a turnover above the VAT threshold (£85k) will have to:
- Provide their normal VAT return information to HMRC using Application Program Interface (API) software, which must digitally link to the accounting software or spreadsheets; and
- Keep digital VAT records.
The biggest challenge facing the move to a digital VAT system is suitable software. A business needs to use “functional compatible software” to meet the new requirements.
This must include:
- Keeping and preserving records in a digital form as required by the regulations;
- Creating a VAT return from the digital records and providing it to HMRC via API;
- Receiving information from HMRC and providing it in return, via the API platform.
The nature of VAT in the motor sector means that many dealerships also use spreadsheets or manual calculations to finalise their VAT return figure. These spreadsheet adjustments may cover areas such as partial exemption; fuel scale charges and output tax for private use of demonstrators. HMRC says there will be a light touch for a year to ensure that digital links are in place, but ultimately will require that the software package and any data on spreadsheets be digitally linked and not manually input.
HMRC are working with third party software suppliers to create compatible options. As a matter of urgency, dealerships need to speak to their Dealer Management System (DMS) provider to establish what add-ons will be in place to enable the submission of VAT returns after March 2019, when it will no longer be possible for businesses to manually enter VAT figures via the government gateway.
Whilst the immediate focus should be in ensuring that VAT returns can be submitted by API next year, dealers who use manual record-keeping for any part of their business need to act now to preserve all records digitally in a DMS which is fully integrated with the production of figures for the VAT return.
A dealership uses DMS to record all sales and purchases. This software must be capable of calculating the VAT return and submitting it to HMRC. As well as the records in the DMS the company also uses the following additional records:
- A manual second-hand stock book
- A spreadsheet to keep track of its fleet of cars and work out its road fuel scale charges.
- Spreadsheet calculations for partial exemption using data which is manually entered
In order to be compliant with the new MTD rules, this dealership must:
- Digitise its stock book ensuring that all sales, purchase, margin and VAT data is fully integrated into their software package.
- Create a link to export data for partial exemption calculations from its DMS to the spreadsheet.
The better news is that adjustments to VAT return calculations arising from scale charges and partial exemption restrictions can be journaled in the accounting package under current proposals, but a digital link will reduce the chance of errors.