Making Tax Digital (MTD) basic requirements
VAT registered businesses trading above the compulsory registration threshold (currently £85,000) will not be able to use manual records from 1 April 2019. Instead, businesses must use ‘functional compatible software’ (digital records) to meet the new requirements. Digital records mean a software programme or programmes which can connect to HMRC’s systems via an application programming interface (API). The software must be able to:
- Keep the required records in a digital form;
- Preserve those records in digital form for up to 6 years;
- Create a VAT return from the digital records;
- Provide HMRC with this information digitally;
- Provide HMRC with additional data on a voluntary basis; and,
- Receive information from HMRC about the business’s compliance record.
Changes to reporting and record keeping requirements
There are several additional record keeping requirements under MTD. These require business to record line level detail for transactions held within the VAT account, rather than totals as is currently required under VAT Regulation 32. There are certain relaxations within the requirements; primarily allowing businesses to aggregate the value of all supplies made at each rate of VAT, and allowing businesses to aggregate the amount of input VAT recoverable at invoice rather than transaction level.
VAT return submission
Businesses will not be allowed to manually type figures into HMRC’s online filing system.Instead, VAT returns must be filed directly from the digital records. For example, from record keeping software, an API-enabled spreadsheet, or bridging software. VAT adjustments required (such as fuel scale charges, partial exemption and CGS calculations) do not need to be done within the software
All agents will require an Agent Services Account (“ASA”) for each MTD client. Client authorisations should be mapped across to the agent’s ASA if an existing online filing authorisation is in place. Where this is not the case (such as during the pilot phase) and it will be necessary to enrol and re-authorise each client(a digital process). Currently non-UK agents cannot sign-up for an ASA, but this should be remedied in time for 1 October 2019 when non-established businesses are required to be MTD compliant. However this will be an issue if non-UK agents act for UK established businesses.
Exemption from MTD
Limited exemptions from MTD requirements are available, in the circumstances outlined below:
- The tax payer’s religious beliefs are incompatible with the use of electronic communications.
- It is not reasonably practical due to age, disability, remoteness of location or other reason.
- The taxable person is subject to an insolvency procedure.
However these exemptions are not granted automatically and must be approved by HMRC. Approval will be granted on a case by case basis. It is likely that businesses currently exempt from online filing will continue to be exempt from MTD requirements.
No other exemptions are currently available, so charities, local authorities, trusts etc., are all within the scope of MTD for VAT if their taxable turnover exceeds the VAT registration threshold.
Voluntarily VAT registered businesses trading under the VAT turnover threshold are not required to use MTD.
MTD implementation is deferred for 6 months (until 1 October 2019) for businesses in the following categories:
- Non-established businesses;
- ‘Not for profit’ organisations that are not set up as a company;
- Public sector entities (such as Government departments, NHS Trusts) required to provide additional information on their VAT returns;
- Local authorities;
- Public corporations;
- Businesses required to make payments on account;
- Businesses with group and divisional registrations;
- Businesses using the Annual Accounting scheme.