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My client runs a small VAT registered business, whose taxable turnover is just over the VAT threshold. They have concerns about using Making Tax Digital (MTD) and the costs involved in ensuring they comply; they currently operate a very simple spreadsheet to keep their records, and do not want to spend thousands on new software.

 

Compliance with Making Tax Digital is mandatory for most businesses trading over the VAT threshold with effect from 1 April 2019.

A small number of businesses have been deferred to October 2019. The timeline confirming those businesses that are deferred and those businesses eligible to join the pilot can be found here:

https://www.gov.uk/government/publications/making-tax-digital-for-business-stakeholder-communications-pack/making-tax-digital-for-business-stakeholder-communications-pack#the-mtd-timetable

In order to be compliant with MTD, traders or accountants will need to have the appropriate API (Application Programming Interface) enabled software. They will have 3 options:

  • Continue with their current software if this is already MTD compliant
  • Upgrade their existing software to an MTD compatible version
  • Record their digital records on a spreadsheet and use an API enabled bridging product to transfer the 9 box VAT return data to HMRC.

HMRC have a list of MTD compatible software.

https://www.gov.uk/guidance/software-for-sending-income-tax-updates#VAT

Software marked as ‘Digital record keeping’ means the software does everything that is needed to comply with MTD – from digital record keeping, to API VAT return submission. If the software doesn’t have this feature, then it means this is a ‘bridging product’, which is capable of transferring the VAT return data using API, from your existing non-API enabled software, i.e. you can link it to the spreadsheet that you use to keep your digital records and send the data through to HMRC.

There are 2 key elements to MTD:

  • Digital record keeping which means keeping a digital record of supplies made and received, reverse charge transactions and summary data (see VAT Notice 700/22 Section 3)
  • API transfer of your nine box VAT return data to HMRC.

The digital link to transfer your nine box VAT return data must be in place from the first return submitted under MTD. There also needs to be a digital link in place between your digital record keeping and nine box summary data. However, for the first 12 months, there is a soft-landing approach with this second digital link, meaning that whilst it is still recommended, this digital link is not mandatory until April 2020.

If you need advice do not hesitate to call us on 01237 472071 or email [email protected]

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