Making Tax Digital for VAT (MTDfVAT) is coming April 2019… less than 5 months away! If you are not aware of MTDfVAT please let me provide a brief overview:
MTDfVAT is part of HMRC’s new initiative to transform the tax system and make tax administration more effective, efficient and easier for tax payers. In order to ensure compliance, all businesses with a taxable turnover over the VAT threshold of £85,000 should keep their business records digitally and submit their VAT returns using HMRC compatible software. The £85,000 threshold comprises all standard, reduced and zero rated income.
This will affect all businesses large or small that currently type their VAT return figures directly into the HMRC Government Gateway website, the manual entering of information in this way will no longer be an option. Figures will require to be submitted to HMRC via an Application Programming Interface link (API) within your accounting software.
Businesses can use the API to submit their returns to HMRC and also receive information from HMRC directly to the businesses software i.e. change in VAT period, return reminders, information from the VAT account, etc. This shouldn’t be all doom and gloom however, it can be a new start for your business and a chance to change outdated processes. Please see below some of the frequently asked questions I have encountered so far on my MTDfVAT journey:
What about businesses under the threshold?
These businesses are not required to comply with MTDfVAT rules. They must however, track their taxable turnover on a rolling 12 month basis in order to ensure they have not exceeded the £85,000. Once exceeded, they must comply with MTDfVAT. They cannot exit the scheme and must remain compliant even though their turnover may fall below the threshold again.
Will the HMRC Government Gateway portal still be open after April 19? And what is the MTDfVAT pilot?
Businesses under the threshold, will still be able to use their Government Gateway ID to log in and submit their VAT returns. When you sign into your Government Gateway account you will be prompted to sign up for MTDfVAT. This is the pilot and can only be joined if you are:
A sole trader
A Limited Company
Up to date with your VAT
Currently use MTDfVAT compatible software
You currently can’t take part in the pilot if you:
are a trust or charity
are part of a VAT group or VAT Division
trade with the EU
are based overseas
are a partnership
submit annual returns
make VAT payments on account
use the VAT Flat Rate Scheme
are a business that is newly registered for VAT and you have not previously used your VAT online account to submit your VAT Return
have incurred a default surcharge in the last 24 months
Once you sign up, you must remain compliant and cannot leave the MTDfVAT scheme.
What is compliant software?
HMRC have over 150 software developers currently taking part in the beta testing phase of MTDfVAT. Each week, they release the names of the developers that have successfully submitted returns using the HMRC API with their software. This list can be found in the following link:
If my software is on the list does that mean I am compliant?
Not exactly. We need to understand how your current VAT return process works. For example, you may be using SAP which is on the HMRC list of approved software above however, you are downloading to spreadsheets, adjusting figures manually and then typing the figures into HMRC’s Government Gateway. There are a number of reasons for this:
You may be completing adjustments outside of your software, for example partial exemption, fuel scale charge. These types of adjustments are allowed under MTD; however, you must post a journal into your software to reflect the adjustments before submitting your return through the software. The calculation does not need to be completed in the software, only the recording of the adjustment. AAB can help provide training for posting journals on some software programmes.
You may have a number of programmes that record different parts of the business and need to merge this information together in a spreadsheet in order to complete and submit the return e.g. group VAT returns. You will require bridging software in order to stay compliant, AAB can offer this solution. Please contact me ( firstname.lastname@example.org) and I can arrange this for you.
Your IT department may be based in another country out with the UK, and you don’t currently use the UK VAT reporting module meaning the update for MTD will not work. Again AAB can provide the solution via our bridging software.
What about VAT groups?
As announced in October 2018, VAT groups have had the deadline before they are mandated to use compliant software extended to 1 October 2019. Businesses that use multiple systems or have multiple companies on accounting software and have to compile this information to form a Group VAT return will require to do the following:
Digitally download the information to a spreadsheet from each system to calculate the VAT return figures for the Group
Post a journal of the VAT totals into the group controller’s system in order to submit the VAT return via API to HMRC.
If none of the companies’ software is MTD compliant, you will require to use bridging software to link the spreadsheet to HMRC and submit the return. As mentioned, AAB have a solution that can be offered for this and the price will be coming soon.
Has the deadline been extended for any other businesses?
In addition to VAT Groups, MTD for VAT will now not be mandatory until 1 October 2019 for businesses that fall into one of the following categories:
• ‘not for profit’ organisations that are not set up as a company;
• VAT divisions;
• public sector entities required to provide additional information on their VAT return (such as Government departments and NHS Trusts)
• local authorities;
• public corporations;
• traders based overseas;
• those required to make payments on account; and
• annual accounting scheme users.
What is an Agent Services Account?
The Agent Services Account (ASA) is the new way for agents like AAB to access the new HMRC services and align the way in which we receive and submit information. This allows us to have access, if required to your information in order to speak with HMRC or help with any VAT related queries. If you do not have an agent, you will have access to your business tax account in the same way that you do now via the HMRC portal.
What is the soft landing period?
This is the period from 1 April 2019 to 30 March 2020. HMRC are allowing this as a period for businesses to enable digital links between their functional compatible software. During this time, the link between your system and your VAT return spreadsheet is not required to be digital however, the link between your spreadsheet and submitting to HMRC is mandatory. From 1 April 2020, all links are required to be digital with no manual intervention with the exemption of VAT adjustments like partial exemption, capital goods scheme adjustments, fuel scale charge adjustments can be held out with the system.
For more information please contact Lynsey.Taylor (email@example.com) or your usual AAB contact.
To find out more about Lynsey and the VAT & Duty team, click here.