As of April 2019, all VAT registered businesses with a taxable turnover above the VAT registration threshold will be required to maintain digital records as part of HMRC’s push towards Making Tax Digital (MTD).
HMRC have now published the final version of the VAT Notice, elements of which have the force of law, which explains the changes that will come into effect from April 2019 in relation to the digital submission of VAT return information.
The main points to note from this release are:
- The MTD rules apply from the first VAT period starting on or after 1 April 2019.
- With effect from1 April 2019, any business whose taxable turnover is above the VAT registration threshold must follow the rules set out in the Notice.
- A business that is not registered for VAT at 1 April 2019, but which is required to register from a date subsequent to 1 April 2019 because the taxable turnover for the previous 12 months has exceeded the VAT registration threshold, must follow the rules in the Notice for all VAT returns that it is subsequently required to make.
- A business that has voluntarily registered for VAT as at 1 April 2019 will not have to follow the MTD rules at that stage, but can choose to do so voluntarily. If its turnover subsequently exceeds the threshold from, say, the end of November 2019, then the business must follow the rules in the Notice for any VAT period that starts on or after 1 December 2019.
- It is confirmed that there will be a ‘soft landing’ (i.e. a period of grace) for digital links in the first year. However, this will only apply to links between different software programmes, and will not apply to transfers to software solely for the purposes of submitting the return (e.g. bridging software), where transfers of data must be digital from day one.
- A spreadsheet that is capable of recording and preserving digital records can still be used, provided that it is API-enabled (Automatic Program Interface) and, thus, can transmit information digitally to HMRC, or if it is used in conjunction with one or more programs that do perform that function.
- HMRC have published a list of software suppliers who are developing functional, compatible software and who have tested their products in HMRC’s test environment: https://www.gov.uk/government/publications/software-suppliers-supporting-making-tax-digital-for-vat/software-suppliers-supporting-making-tax-digital-for-vat
Now that the Notice has provided final clarification, the next step for all VAT registered businesses is to consider how their reporting process may need to change to meet the post April 2019 legislation.