Making Tax Digital (MTD) for VAT is the HMRC flagship project originally aimed at getting UK tax payers to file their tax returns online every quarter. Since its launch earlier this decade the MTD project has been scaled down with the first phase of its implementation being limited to VAT registered businesses filing their quarterly VAT returns online; pretty much as they do right now.
Unfortunately HMRC have left the communication of this project and its impact until the last moment; only sending out letters to businesses on 3rd January this year. In fact many businesses who may be affected by this change still know very little about it or what it means for them.
So let’s have a look at Making Tax Digital for VAT, who it affects and what they need to do.
Does Making Tax Digital for VAT apply to me?
If you are registered for VAT with a turnover in excess of £85,000 then you fall within the Making Tax Digital for VAT reporting regime.
It is worth stressing that businesses who are registered for VAT but with a turnover below £85,000 are not caught within the new regulations. They do not need to do anything right now; although HMRC could change this at some future date. So it is worth keeping a watching brief on developments.
When do the new rules come in?
The new rules apply to VAT return starting on or after 1st April 2019. In reality this means that for all VAT returns up to and including a VAT quarter end date of 31st May 2019 there will be no change.
The first VAT return to be filed under the new regime will be one with a VAT return quarter end date of 30th June 2019 which is due to be filed on or before 7th August 2019.
What do I need to report to HMRC?
Simply put … exactly what you do right now and nothing more. The same nine boxes need to be completed on the VAT return. The only difference is that you have to file the same data via a different system or, as HMRC call it, a different “Gateway”.
Although the previous one worked fine, HMRC have replaced it with a new one that you cannot access directly (as you can for the current one). You now have to pass data into the HMRC system electronically meaning that you’ll need a system to file your VAT return.
Does this mean that I need to replace my accounting system?
Unless you want to or there is economic benefit to you doing so you do not need to replace your accounting system as long as your records are on a computer (digital). This includes a spreadsheet or other computer system. HMRC are not prescriptive about exactly what keeping digital records means although if you keep manual records you will need to move to something electronic or digital.
Some advisors are promoting the need to move to online Accounting Software to be Making Tax Digital compliant although there is nothing in the new rules to support this.
In fact amongst the plethora of software suppliers with Making Tax Digital ready products (see https://www.gov.uk/guidance/software-for-sending-income-tax-updates#VAT) there is a variety of solutions called “Bridging” software.
What is Bridging Software?
Bridging software is a fancy title for a piece of software that links your system or spreadsheet to the new HMRC VAT system (Gateway). It bridges the gap between you and HMRC and makes you Making Tax Digital ready.
I am using an Excel Spreadsheet for VAT. What should I do?
The simplest thing is to select a Bridging Software solution and set up the link from your spreadsheets to the new software linking this to the HMRC system.
How much is this all going to cost me?
Generally this is very low cost (circa £50 plus VAT for a year) and very easy to install with most Bridging Software suppliers providing support, videos, webinars or other content to get you up and running in minutes rather than hours or days.