Does your accounting system comply with MTD for VAT?
Feb 02, 2018
Key Dates VAT
Making Tax Digital (MTD) for VAT is scheduled to start in April 2019, which means that from that date your VAT information needs to be submitted to HMRC using a digital accounting system.
On 18 December 2017, HMRC published draft legislation together with examples of how the business accounting system 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” must be used to calculate the VAT due, report the VAT figures to HMRC (as per the current VAT return), and to receive information back from HMRC.
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. The important thing is that the data is recorded electronically, either by the date that the VAT return must be submitted, or when it is actually submitted, whichever is the earlier.
Digital Links in the Trail
A business can use more than one piece of software to keep its digital records, but those separate software programmes must be “digitally linked”. HMRC provides examples of what it means by digitally linked in the draft notice.
One example is a business which uses one digital accounting system to record all sales and purchases, and this software then calculates the return and submits it to HMRC. As well as the records in the digital accounting system, the business also uses a spreadsheet to keep track of a fleet of cars and to work out its road fuel scale charges. The draft guidance suggests that in this instance the business can simply type the adjustment into its accounting software.
In a survey published by HMRC on Making Tax Digital for Business, 2,900 businesses and landlords were asked how they currently dealt with their record-keeping and whether they engaged with accounting software. The results revealed that although over 94% of those surveyed had access to digital devices and the intent, the use of spreadsheets or paper methods for record keeping was more widespread than software, mainly because using software wasn’t deemed necessary.
Only 30% of the respondents were aware of the upcoming requirements to use software and to send regular updates to HMRC. So this research has indicated that whilst most businesses want to be compliant with MTD, on the whole they aren’t keen to adopt digital solutions and they are generally very reliant on their accountants to help them through the process.
We can of course work with you to make sure that your accounting system will comply with the new VAT rules before they start in 2019. Note that MTD for VAT will only be mandatory where turnover is above the VAT registration limit, which is currently £85,000 per annum.