If you run a VAT-registered business with a taxable turnover above the VAT registration threshold (currently £85,000) you are required to keep digital VAT business records and send returns using Making Tax Digital (MTD)-compatible software for VAT periods starting on or after 1 April 2019. Businesses with a taxable turnover below the VATthreshold can also sign up for MTD for VAT voluntarily. This also applies to other VATentities, such as charities, government bodies and limited companies.
The MTD for VAT pilot started in April 2018 and is currently in a private stage, available only to invited volunteer VAT businesses and their agents. This is so we can work with software providers, testing our systems and their products on a small scale before opening MTD to a wider audience. At the moment we are limiting the number and types of business we invite into the pilot. We’ll provide more guidance about how to sign up to MTD for VAT on GOV.UK later in the year, but you can email us if you are interested in becoming involved in the private VAT pilot earlier.
If you have an agent, you should speak to them to find out when it may be best for you to join the pilot.
When MTD for VAT will be mandatory for your business
If you are registered for VAT and your taxable turnover is above the VAT registration threshold (currently £85,000), for accounting periods starting on or after 1 April 2019, you must keep digital business records and send your VAT returns to HMRC using MTD-compatible software.
If your taxable turnover drops below the VAT registration threshold at any point after 1 April 2019 you are still required to continue to keep digital records and send HMRCyour VAT returns using MTD-compatible software. This obligation doesn’t apply if you de-register from VAT or if you are exempt from MTD for VAT.
What happens if your taxable VAT turnover is below the VAT MTD threshold
If your business has a taxable turnover below the VAT threshold you can still sign up for MTD voluntarily. HMRC is encouraging businesses with a taxable turnover below the VAT threshold to sign up so they can also benefit from MTD. Businesses can also sign up for MTD for Income Tax. This means, subject to your business type, you can further streamline your business processes. You can read more about MTD for Income Tax further down.
Software will help you stay on top of business record keeping, allowing you (and your agent, if you have one) to better understand how your business is performing.
What your business needs to do to be ready to sign up for MTD
You will need to keep your business records digitally from the start of your accounting period. If you already use software to keep your business records, check your software provider’s plans to introduce MTD-compatible software.
If you don’t currently use software, or your software won’t be MTD-compatible, you’ll need to consider what software is suitable for your requirements.
We’ll publish details of the VAT software available later in the year, when we open the VAT pilot to more businesses. Read about software providers currently supporting MTDfor VAT.
Using spreadsheets for your business records
A spreadsheet can be used to calculate or summarise VAT transactions to arrive at the return information you need to send HMRC.
If you use spreadsheets to keep business records, you’ll need MTD-compatible software so that you can send HMRC your VAT returns and receive information back from HMRC. Bridging software may be required to make spreadsheets MTD-compatible. You can read what we mean by ‘bridging software’ below.
The information must not be physically re-typed into another software package.
Records that you need to keep digitally for MTD for VAT
MTD does not require you to keep additional records for VAT, but to record them digitally.
Your digital records should include, for each supply, the time of supply (tax point), the value of the supply (net excluding VAT) and the rate of VAT charged. They should also include information about your business, including business name and principle business address, as well as your VAT registration number and details of any VATaccounting schemes you use.
Compatible software is a software product or set of software products that between them support the MTD obligations of keeping digital records and exchanging data digitally with HMRC through the MTD service. If more than one application is being used, data that flows between those applications must also be exchanged digitally.
Digital records can be kept in a range of compatible digital formats. They do not all have to be held in the same place or on one piece of software. For example, a spreadsheet can be a component of digital record keeping provided the product that consolidates records, or summary records from the spreadsheet, can exchange data digitally with HMRC.
HMRC will give businesses until 31 March 2020 to make sure there are digital links between software products. Before that date, cut and paste will be an acceptable way to transfer information.
The exception to this is where return information is to be transferred to a software product enabled for an Application Programming Interface (an API provides a secure link between software and HMRC) and designed to submit the 9-box VAT return (such as bridging software). In those circumstances the transfer of information must only be digital.
If in doubt, businesses should discuss with their agent or software provider.
‘Bridging software’ is HMRC’s description of the digital tool that can take information from other applications, for example, a spreadsheet or an in-house record keeping system, and lets the user send the required information digitally to HMRC in the correct format.