Making Tax Digital for VAT: Is More Information Required?

Though the new scheme brings with it many alterations, the good news is that it’s only the way that information is documented and processed that will change with Making Tax Digital for VAT. When it comes to submitting information, the same nine categories are required.

It’s worth noting that HMRC have suggested they may ask for additional data in future – but that this process will be voluntary.

Can I Still Keep Paper Records?

Whilst digital records pertaining to VAT need to be kept and preserved as part of Making Tax Digital for VAT (and then filed utilising appropriate software), there’s no restriction on creating paper invoices or notes. However, any data relating to invoices will need to be uploaded in a digital format, which could impact on the way that you process information. If your business would previously have simply entered a monthly total into a spreadsheet, this practice will need to change.

What Software is Required for Making Tax Digital for VAT?

HMRC have stipulated that software should be ‘MTD-compatible’; i.e., it must be able to:

• Receive data from HMRC.
• Keep and record appropriate digital records.
• Extract and send data to HMRC (as well as the necessary returns).

It’s not mandatory that you utilise one type of software to perform all the functions listed above, though it may well be easier. If you use different platforms, these will need to be digitally linked – copying data from one system to another is prohibited.

What is the ‘Soft Landing Period’?

If you’ve been keeping abreast of the Making Tax Digital for VAT updates, you’re likely to have heard the phrase ‘soft landing period’.  What this term entails has changed over time, but the official VAT notice confirms the following:

• During the first year (twelve months), HMRC will allow companies to manually cut and paste data from one medium to another.
• However, as explained above, this does not constitute the required ‘digital link’ under the terms of Making Tax Digital for VAT: it’s not a fully automated process. As such, this practice will only be allowable during the soft landing period.
• There is also an exception to this rule, which relates to the preparation of information for a VAT return. Data that is transferred from one medium to another for the purpose of submitting return information to HMRC must be conducted digitally.
• It is strongly advised that the soft landing period is used to get your business up to speed with the new processes, rather than taking advantage of the temporary flexibility in order to maintain manual procedures. The soft landing period should be seen as a time to update systems and test processes fully, eliminating the risk of errors (and potential fines) in future.

Is Making Tax Digital for VAT the same for all schemes?

There are many different VAT schemes and as such we will only provide a brief overview here. For more information, please seek the advice of an IBISS & CO accountant (the VAT Notice 700/22 also provides further details).

Margin Scheme. If you sell certain items (such as antiques) or use the Tour Operators Margin Scheme, you don’t need to conduct and keep a digital calculation of the marginal VAT. The supplementary records required for these schemes don’t need to be preserved in digital form, either.

Retail Scheme. For those who use the Retail Scheme, digital records of Daily Gross Takings must be kept; however, you aren’t required to keep digital records pertaining to the related supplies.

Flat Rate Scheme. For small businesses using the Flat Rate Scheme, there are a number of elements that don’t need to be documented in digital form. For example, you don’t need to document your purchases digitally unless these are capital expenditure goods. For more detailed advice on what records need to be kept in order to remain compliant, please consult a chartered accountant without delay.

This blog is the second edition in a series answering common questions around Making Tax Digital for VAT. Check out the first part, ‘MTD for VAT: FAQs (Part One)’ if you haven’t already, and follow us on Facebook, Twitter or LinkedIn to keep up to date with future publications.