Making Tax Digital for VAT


Oct 06, 2017



In July 2017 the government announced that it is making changes to its timetable for Making Tax Digital (MTD), the new initiative to digitise the UK’s tax system. If you’re self employed or a landlord paying income tax this is good news – Making Tax Digital for this tax group has now been deferred by two years. So any business with a turnover under the current VAT threshold of £85,000 won’t be asked to keep digital records or update HMRC quarterly for other taxes until at least April 2020.

However, Making Tax Digital for VAT purposes is going ahead as planned, and will come into effect from April 2019. The Finance Bill published on 8 September 2017 includes primary legislation allowing the introduction of Making Tax Digital for VAT, and gives HMRC new powers to control how information will be submitted by VAT registered businesses.

Who will be affected?

All businesses that are VAT registered, and which have a turnover above the current £85,000 VAT threshold, will be required to comply with Making Tax Digital for VAT. If your business is VAT registered, but your turnover is below that threshold, then you can voluntarily opt in to MTD.

Do note however that if your business is close to reaching the VAT threshold then you’ll need to keep monitoring your income, as once you exceed the current £85,000 limit then you’ll be required to use MTD. And once you’ve been mandated to use MTD then you won’t be able to drop out again (even if your turnover drops below the limit), without de-registering your business from VAT.

What do I need to do?

The information which you will be required to keep and submit under MTD isn’t changing – it’s the format of this information which will be different. To comply with MTD for VAT, you’ll need to keep your VAT records digitally, and provide your VAT return information to HMRC through new MTD compatible software.

The digital records you’ll need to keep include:

  • Your ‘designatory data’ – in other words your business name, your principle place of business, your VAT registration number and information about your membership of any VAT schemes
  • Information about any supplies you make and receive, including individual sales and purchases plus tax dates
  • The VAT account that you must keep in order to provide an audit trail between primary records and the VAT return

You’ll be required to submit the same information that exists in the nine boxes of the current VAT return. VAT returns will still need to be submitted on a quarterly basis, and your deadlines for submission and payment won’t change – for the time being at least.

How will I submit my VAT return?

Under MTD your VAT return will no longer be submitted via the Government Gateway. Instead you’ll need to use what HMRC refers to as ‘functional compatible software’. This means you’ll need to use a software programme which is able to connect to HMRC’s systems via an API (Application Protocol Interface – a connecting link which allows the MTD software to talk to HMRC’s software). Clarification is still required on exactly what software businesses will be required to use, but it’s safe to say that simple spreadsheets and manual accounting will no longer be an option. Cloud accounting software developers are currently piloting various options which should be made available well in advance of MTD’s launch date.

When will MTD affect me?

The government has until April 2018 to finalise all the new regulations surrounding MTD, so that businesses and software developers have 12 months to prepare before the new VAT requirements come into force. Then from 1 April 2019, if your business is registered for VAT with a turnover above the VAT registration threshold, you will be required to keep your VAT information in digital format. You’ll also have to submit any VAT returns starting on or after 1 April 2019 via the new MTD system.

If your business is currently below the VAT threshold but breeches it after 1 April 2019, you may be required to change your business software overnight. Current indications are that digital record keeping requirements will come into force straight away, and not just when the VAT return is due.

There are still quite a of number of question marks surrounding Making Tax Digital and exactly how it’s going to be implemented. If you would like any further info about how MTD may affect you and your business then please do get in touch!