HMRC’s Making Tax Digital for VAT (MTDfV) scheme goes live in April 2019, and will enforce a critical change in the way that businesses submit VAT returns. Most organisations will be required to file VAT returns under the terms of MTDfV from the 1st April 2019; however, a number of organisations have been given an extension to this deadline (meaning that they do not have to adhere to MTDfV until October 2019). It is essential that businesses know which deadline HMRC expects them to comply with.
Whichever deadline is applicable to your business, it is crucial that you make preparations for the change as soon as possible. In this blog, we run over the key points of MTDfV so that you can stay ahead of the curve.
What is Making Tax Digital for VAT (MTDfv)?
Making Tax Digital represents a crucial element of HMRC’s intention to become a digital tax authority, and MTDfV will apply to all VAT schemes and registrations (including flat rate and retail). What this means is that all businesses with a taxable turnover above the VAT threshold (in 2019, £85,000 per year) must adhere to the new regulations. Businesses below the threshold may also opt in to MTD and file their returns in accordance with the new policies.
When does MTDfV start?
The first phase of the programme concerns what HMRC have deemed a ‘digital’ link. This is where data is exchanged electronically between software programmes without any manual input (i.e. without copying any information over by hand). At present, a company’s accounting software might automatically record incoming and outgoing transactions; this information might then be transferred to a spreadsheet which calculates the VAT return figures, after which point these figures are sent to bridging software which then submits the return to HMRC. MTDfV requires the steps in this journey to be digitally linked.
The first thing VAT-registered businesses are required to do is create a digital link between their ‘functional compatible software’ (which they have chosen to record figures for their VAT returns in) to HMRC’s MTDfV system and bridging software. This requirement will come into effect for VAT periods beginning on 1st April 2019 (or after).
There is an extension to this deadline for organisations with more complicated VAT requirements, however. HMRC has confirmed a deferred deadline of 1st October 2019 for a number of entities, as follows: ‘trusts, ‘not for profit’ organisations that are not set up as a company, VAT divisions, VAT groups, those public sector entities required to provide additional information on their VAT return (Government departments, NHS Trusts), local authorities, public corporations, traders based overseas, those required to make payments on account and annual accounting scheme users.’
It is vital that VAT-registered businesses consider whether they fall into the ‘deferred deadline’ group. HMRC has written to all eligible VAT-registered businesses confirming the requirement for them to use MTDfV and whether they will need to adhere to the April or October deadline. If you believe your business should be part of the October rollout but have not received written confirmation of this from HMRC, it is important that you contact HMRC without delay.
The second phase of the programme requires VAT-registered businesses to create a digital link between ‘underlying records’ (i.e. those records that are used to make calculations). This comes into effect on 1st April 2020; however, as with the ‘first phase rollout’, for larger or more complex businesses this will be deferred until 1st October 2020. In effect, what this means is that all businesses will get a soft landing period of twelve months to create digital links throughout the VAT record-keeping/calculation/submission process: a decision which has been welcomed by most organisations.
If your business is preparing for the MTDfV transition, the experienced accountants and qualified tax advisers at IBISS & Co are here to help. We can perform a review of existing systems – highlighting any gaps in the digital journey – and help you find solutions that will ensure compliance. Contact us today to learn more.