Does your accounts system comply with Making Tax Digital (MTD) for VAT?

Making Tax Digital (MTD) for VAT is scheduled to start in April 2019 and VAT registered businesses will need to submit their VAT information to HMRC digitally.  This will replace the current VAT Return.

On 18 December 2017, HMRC published draft legislation together with examples of how the business account records might link with the HMRC computer in order to comply with MTD for VAT. The legislation specifies that “functional compatible software” must be used to record and preserve prescribed VAT related data.

What are Digital records?

“Functional compatible software”, such as QuickBooks, SageOne or Xero, must be used to calculate the VAT due, report the VAT figures (as per the current VAT return) to HMRC, and to receive information back from HMRC.  You may therefore need to update your software in advance of April 2019 if this is not MTD compliant and we can assist you to do this.  

VAT related data for each sale and purchase made by the business includes the time of the supply, the value and the rate of VAT charged, or in the case of purchases, the amount of input VAT allowed.

There is no requirement in the draft regulations that the electronic recording of this data must be done at the time the supply is made, or when the purchase is received. As long as the data is recorded electronically by the earlier of the date that the VAT return must be submitted, or is actually submitted.

Digital Links in the Trail

The business can use more than one piece of software to keep its digital records, but those separate software programmes must be “digitally linked”. HMRC has provided examples of what it means by digitally linked.

One example is a business which uses one piece of accounting software to record all sales and purchases.  This software then calculates the return and submits it to HMRC. As well as the records in the accounting software the business uses a spreadsheet to keep track of a fleet of cars and work out the fuel scale charges. The draft guidance suggests that the business can type the fuel scale charge adjustment into its accounting software.

We can of course work with you to make sure that your accounting systems will comply with the new VAT rules before they start in 2019. If we already do your book-keeping and prepare your VAT returns, you do not need to take any action as our systems will be MTD compliant.  If we don’t and you would like to discuss this further, please do not hesitate to contact us.

Note that MTD for VAT will not be mandatory where the business turnover is below the VAT registration limit which is currently £85,000 per annum.

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