Making Tax Digital (MTD) is a key part of the government's plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs. Their plan is for HMRC to become one of the most digitally advanced tax administrations in the world and as such, changes in the way tax is managed has changed and will continue to change.
HMRC state that the by transforming tax administration, it will be:
- more effective
- more efficient
- easier for taxpayers to get their tax right
This system also allows a crack down on tax fraud, for example - where a business can change a paper record to their advantage.
With the end of the soft landing of phase II for MTD for VAT, HMRC is intending to enforce penalties and fines, we look at what VAT for MTD is, who should be following the rules and what these rules are.
A lot of businesses already use digital records and accounts, the difference with MTD is that the software that a business uses must be capable of:
- keeping and maintaining the records specified in the regulations
- preparing VAT Returns using the information maintained in those digital records
- communicating with HMRC digitally through HMRC's Application Programming Interface (API) platform
If your digital records are up to date, the software will be able to collate and prepare your return for you. It will show you the return and ask you:
- to declare the information is correct
- confirm you want it submitted to HMRC.
Once you’ve submitted your return, you’ll receive confirmation through your software that it has been received.
Who Should be Following The MTD Rules?
If your taxable turnover* is above the VAT registration threshold of £85,000, you must follow the MTD rules now. If your taxable turnover drops below the VAT registration threshold after this, you are still required to continue following these rules unless you:
- deregister for VAT
- meet other exemption criteria
* VAT taxable turnover is the total value of everything you sell that is not exempt from VAT, or is outside the scope of VAT.
If you are below the VAT threshold you can voluntarily join the Making Tax Digital service now.
From 1 April 2022 all VAT registered businesses had to sign up, regardless of what they earned.
What Are The Rules?
Records must be kept digitally, these are:
- business name
- VAT registration number
- the VAT accounting schemes used
- the VAT on goods and services supplied, for example everything sold, leased or hired out (referred to as supplies made)
- the VAT on goods and services you receive, for example everything bought, leased, rented or hired (referred to as supplies received)
- any adjustments made to a return
- the time of supply (click here for more on 'time of supply') and ‘value of supply’ (value excluding VAT) for everything bought and sold
- the rate of VAT charged on goods and services supplied by you
- reverse charge transactions - where you record the VAT on both the sale price and the purchase price of goods and services you buy
- your total daily gross takings if you use a retail scheme
Flat Rate Scheme
- items you can reclaim VAT on if you use the Flat Rate Scheme
Gold Accounting Scheme
- your total sales and the VAT on those sales, if you trade in gold and use the Gold Accounting Scheme
You also need to keep digital copies of documents that cover multiple transactions made on behalf of your business by:
- volunteers for charity fundraising
- a third party business
- employees for expenses in petty cash
You must add all your transactions to your digital records, but you do not need to scan paper records like invoices or receipts.
The rules must be followed unless:
- your business uses the VAT GIANT service, for example if you’re a government department or an NHS Trust
- you apply for an exemption (click here for more information)
Keeping Digital Records
You need to use a compatible software package or other software (like spreadsheets) that connect to HMRC systems. Click here to check if your software is compatible.
If you use more than one software package to keep records and submit returns, you need to link them.
Some ways you can link your software include:
- using formulas to link cells in spreadsheets
- emailing records
- putting records on a portable device to give to your agent
- importing and exporting XML and CSV files
- downloading and uploading files
If you are unsure of your responsibilities, whether you are compatible, if you are supposed to be compliant, contact us today for support. We offer a FREE, one hour consultation.
Click here to book an online appointment at your convenience, call us on 01865 522785 or e mail us: firstname.lastname@example.org.