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Making Tax Digital for VAT

As of April 2019 many businesses now need to follow new rules to 'Make Tax Digital for VAT'. It means that, as an accountant, you need to keep digital records for your clients and submit VAT returns online via certain software. There are further requirements coming next year, as we'll see…


Who needs to Make Tax Digital for VAT?

MTDfV is now compulsory for all organisations that are VAT registered in the UK and have an annual turnover of more than £85,000. This includes charities and businesses based overseas, so there are important implications for accountancy practices in managing their clients' financial activity.

MTDfV is part of the Making Tax Digital programme which is the government's drive to lead the way in online record keeping. Its aim is to reduce tax errors and fraud that currently cost the country billions. Other European countries have already created or are planning similar systems.

By keeping information in a digital format, it can be linked so that transactions can be traced from a sale or purchase through to VAT return completion and payment to HMRC. While MTDfV will change how VAT returns are submitted, it won't change the deadlines or the frequency of filing VAT returns.

What about businesses with a turnover under £85,000?

Your clients with a lower turnover have another six months to get ready. They will be expected to embrace MTDfV by 1 October 2019. Businesses that have complex VAT affairs have also been given the benefit of these additional months. These include Trusts and unincorporated charities, local authorities and some public sector entities, NHS Trusts, and public corporations.

How do organisations know which category they fall under?

HMRC has written to businesses about the need to go digital and confirm whether they fall into the April or October phases of the rollout. You should check with your clients about the deadline they've been given.

Are there additional deadlines next year?

Yes – by 1 April 2020 accountants will need to ensure there are digital connections between VAT records and the relevant items on purchase and sales ledgers. This deadline is extended to 1 October 2020 for the small and more complex businesses listed above, so you have a 12-month period to prepare for this.

How can we get ready?

MTDfV is a significant challenge for businesses as it introduces completely new technology for completing VAT returns over a relatively short period of time. It will be particularly difficult for larger businesses with complex accounting systems.

The key step for accountancy firms and small businesses is to review the software products on the market and work out which will match their needs. Most commercial software providers have built the initial VAT filing approach into their systems, and are working to embed digital linking.

There are many webinars and information available so arm yourself with the information now. There are also lots of professional bodies and consultants than can help you assess what the impact is for you and how to prepare. 

As with most industry shifts, there are often unexpected hiccups, so do take steps now to make sure you're ready in plenty of time!

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