Making Tax Digital for VAT
Monday, April 1, 2019
Making Tax Digital (MTDfVAT) for VAT will be mandatory from 1st April 2019 and is the forerunner for Making Tax Digital.
Making Tax Digital for VAT
Making Tax Digital (MTDfVAT) for VAT will be mandatory from 1st April 2019 and is the forerunner for Making Tax Digital. MTDfVAT is a chance to prepare for full quarterly reporting for Agents, HMRC and Business, ensuring systems are in place and adequate, and creating familiarity with digital linking, recording and submissions.
Happily, the Chancellor announced in the Spring Statement that the government will not mandate MTD for any new taxes in 2020. With the buffeting against changes due to Brexit it is thought that there will be no extension to MTD for two years.
CPAA has been attending meetings with other Accounting Bodies and HMRC to discuss the finer points of MTDfVAT and make sure that our members are aware of the requirements and deadlines for MTDfVAT. There is a general feeling that information and guidance from HMRC on preparing for digital VAT submissions has been thin on the ground. Accountants and advisors are generally aware of the changes to VAT reporting but a recent article in “Accountancy Daily” claimed one in five businesses are still in the dark about MTDfVAT.
The steps agents need to take now are:
- Ensure the practice has software which is compatible with MTDfVAT filing. This is quite likely an update to existing systems and the software provider will have the details.
- Sign up for the Agent Services Account. If not already signed up, agents should do so as soon as possible.
The Agent Services account enables agents to file VAT returns digitally on behalf of their clients.
HMRC have provided a step by step guide on how to sign up. It can be found at https://www.gov.uk/guidance/making-tax-digital-for-vat-as-an-agent-step-by-step
Once the Agent Services Account is created, agents will still be able to access their existing Online Services for Agents; the old portal will not close.
- Advise clients who file their own VAT returns to sign up for a Business Tax Account (BTA).
Again HMRC have provided a step by step guide on how to sign up which can be found at https://www.gov.uk/guidance/making-tax-digital-for-vat
Points to note:
- Once the business is signed up to the BTA they will have to file VAT returns digitally. It is therefore very important to ensure that the client is ready.
- appropriate software to file returns digitally is in place
- their last VAT return is completed and submitted via the old system
- If the VAT due is settled by direct debit, then the sign up must be 5 working days after submitting the last VAT return and 15 working days before submitting via the digital link.
- This is an important point for businesses who file monthly returns. The sign-up window is limited by the “working” days stipulation.
- On signing up for the BTA, the business will have to provide an e-mail address. HMRC will send a confirmation e-mail that the sign up has been successful. A digital VAT return must not be submitted until the confirmation e-mail has been received.
- As we know there are many e-mail scams where fraudsters are masquerading as HMRC. The confirmation e-mail from HMRC is vital, but clients still need to use caution when opening e-mails claiming to be from HMRC.
- Only VAT registered businesses over the registration level of £85,000 turnover are mandated to sign up to MTDfVAT.
A VAT registered business with turnover of less than £85,000 does not have to comply. They can sign up voluntarily, however, once signed up they cannot go back.
New VAT registered businesses will have to sign up to MTDfVAT whether or not they have a turnover of £85,000 plus.
- HMRC will only receive the nine-box return as they have done in the past. The underlying records will not be submitted with the VAT return. Should HMRC have a query they will request the underlying records as they do now.
In the future HMRC are looking to develop digital filing so that the underlying records are submitted. For now, it is only the total figures on the returns which are filed.
- Transactions must be recorded digitally. Where there is more than one system recording business data the systems must be digitally linked. The exception is in retail where the till cannot be linked to computer software. Manual entries from Z readings are accepted but must be entered daily.
- E-mail is acceptable digital information, if your client sends you say, a spreadsheet via e-mail. However, that information has to be uploaded to your systems by digital link. (Cut and paste is not acceptable).
- HMRC will grant exemptions where it is not possible to file VAT returns digitally. Each case will be determined on its own merits and exemptions granted only in exceptional circumstances.
As with all new systems it is the transitional period which causes the most headaches. HMRC have said that there will be a twelve-month soft-landing period where no penalties will be issued for lack of digital compliance. This soft-landing gives Agents and Business some breathing space.
Although the launch date is 1st April 2019 the first VAT return to be filed digitally is the first full quarter after 1st April 2019.
Quarter ending 31st March 2019 – first digital VAT return due by 7th August 2019 (April/May/June)
Quarter ending 30th April 2019 – first digital VAT return due by 7th September 2019 (May/June/July)
The most important task is to file the VAT return digitally. It is then a “top down” exercise to ensure the information on the return has been captured digitally. With the soft-landing, businesses have been given twelve months to ensure all digital links are in place.
If a business fails to file a digital VAT return, HMRC will take a sympathetic view during the soft-landing period where it can be proved that effort to comply with digital filing has been made. For example, the VAT liability has been paid, and paid on time.
ICAEW have produced a summary of the MTDfVAT sign up guidance. It is available at https://www.icaew.com/technical/tax/making-tax-digital/signing-up-to-mtd-for-vat