26 March 2018

MTD for VAT – is your accounts package up to it?

The government has made it clear that, despite initial trepidation from small business owners and sole traders, it is not about to backtrack on its plans for Making Tax Digital (MTD).

MTD is a key part of the government’s plans which it says will make it easier for individuals and businesses to get their tax right and keep on top of their affairs - meaning the end of the annual tax return for millions.

The first tranche of this roll-out will see all VAT information being submitted digitally from April 2019. A year goes very quickly in business, so we can start helping business owners straight away. 

On 18 December 2017, HMRC published draft legislation together with examples of how the business account records might link with the HMRC computer in order to comply with MTD for VAT. The legislation specifies that “functional compatible software” must be used to record and preserve prescribed VAT related data.

What are digital records?

“Functional compatible software” must be used to calculate the VAT due, report the VAT figures (as per the current VAT return) to HMRC, and receive information back from HMRC.

VAT related data for each sale and purchase made by the business includes the time of the supply, the value and the rate of VAT charged, or in the case of purchases, the amount of input VAT allowed. 

There is no requirement in the draft regulations that the electronic recording of this data must be done at the time the supply is made, or when the purchase is received. You will be compliant as long as the data is recorded electronically by the date that the VAT return must be submitted or is actually submitted.

Digital links in the trail

The business can use more than one piece of software to keep its digital records, but those separate software programmes must be “digitally linked”. HMRC provides examples of what it means by digitally linked in the draft notice. 

One example is a business which uses one piece of accounting software to record all sales and purchases, this software then calculates the return and submits it to HMRC. As well as the records in the accounting software, the business uses a spreadsheet to keep track of a fleet of cars and work out its road fuel scale charges. The draft guidance suggests that the business can type the adjustment into its accounting software.

Note that MTD for VAT will not be mandatory where turnover is below the VAT registration limit, currently £85,000 per annum. The government has however just announced that it is opening the MTD trial to self-employed individuals, so it is never too early to get involved. 

MTD is one of the biggest changes in tax compliance for years and we're here to help. As the deadline approaches, cloud-based accountancy tool Xero is fast-becoming essential for small business owners who want to keep on top of their accounts. The online system lets you work seamlessly with your bookkeeper or accountant and, what's more, RWB is a Xero Platinum Partner, so we're here to offer you the support you need as you work towards MTD.

RWB can help you plan for MTD and move your accounting online…

For in-depth advice on planning for MTD and moving your accounting online, contact us on 0115 964 8860 or email enquiries@rwbca.co.uk to find out how we can help you. 

The views provided in this article are for general information purposes only. Nothing in this article represents advice of any nature whatsoever. Accordingly, RWB CA Limited does not accept any liability or responsibility for the information contained in this article or any decision or other action that may be taken in reliance upon the information contained within it. RWB CA Limited accepts no responsibility for any errors of fact or opinion and assumes no obligation to provide you with any changes to its assumptions.