HMRC’s new Making Tax Digital (MTD) regulation is the biggest shake-up of tax laws in a generation, bringing tax into the digital age. From April 2019 all VAT-registered businesses will need to keep electronic records of their transactions. They will also have to submit their VAT data to HMRC digitally. Here, Accountingweb’s Rebecca Cave spells out what it will mean for you.
"Under MTD you must keep all your VAT records in a digital format and submit the VAT return through MTD-compliant software."Click to tweet
Who will be affected by MTD?
If your business is VAT registered and your annual turnover is at least £85,000, you’ve either already received or are about to receive a letter from HMRC about submitting VAT returns under the MTD rules. These rules will apply to VAT periods beginning on and after 1 April 2019.
Businesses that are VAT registered, but whose turnover for the year to 31 March 2019 is less than £85,000, aren’t required to be part of MTD at this stage, but they can join it on a voluntary basis by getting in touch with HMRC.
If you’re VAT registered, but have a low turnover and decide not to opt into MTD, you’ll need to keep an eye on your turnover for each 12 month period. If this total exceeds £85,000 you’ll have to join MTD from the start of your next VAT period.
What will MTD change?
Under MTD you must keep all your VAT records in a digital format and submit the VAT return through MTD-compliant software. Note, the current online VAT return form on gov.uk will be closed to all businesses which have to comply with the new MTD rules. This is because HMRC want to reduce the human errors that happen when people manually type VAT figures into the form.
VAT registered businesses not within the scope of MTD can carry on submitting VAT returns as now, using the online VAT return form on gov.uk.
"You will be responsible for keeping your business records in a digital form"Click to tweet
What will stay the same?
The VAT return will be due on the same day. For quarterly returns this is seven days after the end of the month that follows the end of the VAT quarter.
The VAT due will be payable as it is now – by electronic transfer, BACS, by direct debit or at a bank. Businesses which use the VAT annual accounting scheme or who make payments on account to HMRC, will generally pay the VAT due by standing order.
What about digital records and MTD?
You will be responsible for keeping your business records in a digital form. This basically means recording at least these data points electronically for each transaction:
|Time of sale (tax point)||Time of purchase (tax point)|
|Value excluding VAT||Value net of VAT|
|Rate of VAT charged||Amount of VAT to reclaim|
HMRC will also require you to record the following information digitally so it knows where the VAT return has come from:
- Your business name.
- Your business address, or principal business address.
- VAT registration number.
- Any VAT accounting schemes that you use.
"If you are an active QuickBooks user then it’s good news. You already manage transactions digitally so you won’t notice much of a change."Click to tweet
What about retail VAT?
Shops that use a VAT retail scheme can keep digital records of the gross daily takings, so won’t have to record each sale separately. If a purchase invoice includes more than one item and all the items are charged at the same rate of VAT, the invoice can be treated as a single entry. You’ll also want to record some additional information for credit control or accounting purposes, such as the name of the customer or supplier, and when the sale/purchase was paid for.
You don’t have to take a picture of each purchase receipt and sales invoice — recording the required data in a computer-based accounting system or on spreadsheet will be sufficient. As long as the VAT data can be transferred from the accounting system or spreadsheet via a digital link to MTD-compliant software, which submits the VAT return to HMRC, you will meet MTD requirements.
The digital link can be as simple as sending the spreadsheet with completed VAT figures to your accountant by email or on a data stick, so the VAT data can be imported into the accountant’s MTD-enabled software. A simpler solution is to use a single software package to record your VAT data, which will also submit the VAT return to HMRC and be accessible by your accountant.
What does it mean for me?
If you are an active QuickBooks user then it’s good news. You already manage transactions digitally so you won’t notice much of a change. Here’s why:
- For MTD you need to record all your transactions in “functional compatible software”. QuickBooks meets this requirement as it can connect directly to HMRC.
- QuickBooks also captures all the information that HMRC will be asking for under MTD. So long as you keep using QuickBooks to manage your books, you’ll be ready for MTD.
QuickBooks has been approved by HMRC as having passed the VAT test environment for MTD, so it can safely be used to submit VAT returns directly to HMRC.
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