From 1st April 2019, if you have a VAT registered business with a taxable turnover above £85,000, HM Revenue and Customs (HMRC) are introducing some important changes which will affect you. They are introducing Making Tax Digital for VAT (MTDfV). These may have a significant effect on how you do your bookkeeping. From your first VAT period starting on or after 1st April 2019, you will be required to:
- be registered for MTDfV through your new online business tax account (BTA).
- keep your business records in digital format (see below).
- submit your VAT returns to HMRC using MTDfV-compatible software.
You will not be able to:
- manually transfer, recapture or modify the data.
- manually re-enter data (including submissions to HMRC).
The VAT rules are not changing. VAT returns will still require the same information. The deadlines for sending VAT returns and making payments are staying the same. What is changing is HOW you keep the data and how it is supplied to HMRC.
The main business group which will be affected are those who have manual bookkeeping records. They will have to consider moving to either spreadsheets or use accounting software.
Businesses which already use accounting software need to ensure that it will be MTDfV compliant. This is a major change to the way in which VAT information is sent to HMRC: there is no guarantee that existing software will automatically do this.
HMRC say that they will allow a “soft landing period” of a year for businesses to fully comply with the new requirements.
If you are on the Flat Rate Scheme, there is good news! You do not need to keep a digital record of all of your purchases. The only exception relates to capital expenditure on goods on which input tax can be claimed.
What Happens if your Turnover Crosses the £85,000 threshold?
If you are VAT registered but are below the £85,000 VAT threshold you do not have to make any changes at present. If you are close to the threshold you will have to keep an eye on your turnover. You will need to comply as soon as you exceed it. If your taxable turnover subsequently falls below the threshold you will still need to follow the MTDfV rules, unless you deregister from VAT.
Digital Record Keeping
The following records must be kept digitally:
- Your business data – name, address, VAT registration number and VAT accounting scheme.
- For each sale – the time of supply (tax point), the value (net excluding VAT) and the rate of VAT charged.
- For each purchase – the time of supply (tax point), the value and the amount of tax that you will claim. Supplies that do not go on the VAT return, e.g. wages, are not covered by these rules.
Further information can be found in HMRC’s VAT notice 700/22.
If this seems vaguely familiar, it’s because it was originally billed as ‘4 tax returns per year’, and which we covered in October 2016. The Government diluted the requirements significantly in summer 2017 to apply in the first instance to VAT only. GBM Accounts are working hard on identifying clients who are affected to make sure that they will comply with the new regime. If you have any questions or concerns, please do not hesitate to ask.