The UK government and HMRC have the ambition to become one of the most digitally advanced tax administrations in the world. As of today, every individual and business in UK already has access to their own personalized digital tax account. The personal tax account can be found in gov.uk website and you need to have government gateway ID and password to access it. Making Tax Digital (MTD) for VAT is a part of the plan making it easier for businesses to get their tax right and keep on top of their affairs.
What is Making Tax Digital for VAT?
MTD is the biggest change to the administration of the tax system in the UK for at least 20 years. It will introduce a requirement for all businesses with a taxable turnover above the VAT registration threshold (£85,000) to keep digital records. For businesses with a turnover below the threshold, it´s not compulsory, but they may also opt to file their VAT returns through MTD.
How will it work?
Under MTD, the following information must be kept using functional compatible software approved by HMRC:
- Name and address of the VAT registered person
- Address of the VAT registered person’s principal place of business
- The VAT registration number
- The VAT accounting schemes
- The date and value of each supply made, and the type of VAT charged
- The date and value of each supply received, plus the amount of any input tax that needs to be recovered
- The VAT exclusive value of each of the following outputs: standard rated, reduced rated, zero-rated, exempt or outside the scope.
According to HMRC the MTD requirements are met by most of the online accounting packages currently available, provided they are digitally linked to HMRC. The required information must be recorded into the electronic account no later than the date on which the return is due or made for that period, whichever is the earlier. Errors must be corrected in the electronic account no later than the end of the period in which the error is discovered. In the short term, MTD is not expected to alter the deadlines or the frequency of VAT returns.
How can my company prepare?
The businesses will have to start using the MTD in April 2019. The first step to ensuring MTD compliance is to ensure the company is using an online accounting package which will be deemed ‘functional compatible software’ for MTD purposes.
For businesses currently maintaining their VAT records using an online accounting package, this should be sufficient for MTD compliance. However, it is highly recommended that you contact your online accounting provider and ask them if their software will be compatible with the MTD update.