As you are now probably aware, tax reporting is changing. HMRC are introducing a digital tax system that’ll be more eﬀective, more eﬃcient and easier for businesses and individuals like you to use.
Currently, 99% of businesses submit a VAT return online – 87% of whom submit via the HMRC Portal. Under the Making Tax Digital (MTD) scheme this portal will no longer exist, and VAT returns will need to be submitted directly from MTD approved software. Here are five facts about MTD:
1) Flat rate scheme for VAT – no digital record of purchases
A new advantage using the Flat Rate scheme is businesses do not need to keep a digital record of purchases. The only exception is where the expenses are capital expenditure goods on which input tax can be claimed.
This rule also includes the digital record of the relevant goods used to determine if businesses need to apply the limited cost business rate
2) No supplementary data submitted to HMRC
The 9 boxes on the VAT return for MTD is still the same. No extra numerical information is submitted. In the future HMRC might specify what additional supplementary data will need to be submitted. This is likely to be information that supports the 9 box VAT Return, but for now this is only voluntary information.
3) No tough HMRC approach on digital links between software programmes
HMRC will allow a period of time for businesses to have in place digital links between all parts of their software programmes.
For the first year of mandatory MTD for VAT, businesses will not be required to have digital links between software programs containing accounting records. HMRC have called this the ‘soft landing period’.
There is only a mandatory digital link in the final connection between HMRC, and VAT records maintained in accounting software, or spreadsheets.
4) Not every business with turnover over £85,000 has to submit MTD VAT returns from 1 April 2019
HMRC have delayed MTD VAT return for VAT-registered businesses with more complex requirements for returns starting on or after 1 October 2019.
This includes businesses that fall into the following categories:
- ‘Not for profit’ organisations that are not set up as a company
- VAT divisions and groups
- Public sector entities required to provide additional information on their VAT return (Government departments, NHS Trusts)
- Local authorities
- Public corporations
- Traders based overseas
- Businesses required to make payments on account
- Annual accounting scheme users.
5) Calculations for VAT Margin schemes not digital
VAT registered Businesses aren’t required to keep the calculation (or any additional information) of the marginal VAT charged in digital form. These records, however, must still be maintained in some format.
If digital records are kept and software used doesn’t allow to record the VAT on the margin, then businesses will need to record this as:
- Record the sales at one VAT rate, then adjust at the end of the VAT return period
- In the software record one line as, standard-rated supply and one zero-rated supply.
This blog only contains general information, for specific advice and any further questions please speak to either Chris Kyffin-Walton or Chris Barnard from the Brighton office.