A Simple Guide to Making Tax Digital (MTD) for VAT

Given the questions many people have surrounding this we thought we should explain how it affects you and what you need to do about it.

Does it affect my business?

It affects all VAT Registered UK businesses with a taxable turnover above £85,000.

What exactly is it?

HMRC require VAT data to be digitally linked “end-to-end” which means that, once data has been entered into software used to keep and maintain digital records, any further transfer or modification of that data must be done using digital links (data cannot be rekeyed or manually cut and pasted) including submission of VAT returns electronically to HMRC.

Up to now, at each VAT quarter, you would normally calculate your VAT liability (or refund), log in to the HMRC VAT portal and key in your calculated figures into the 9 boxes required. The government want you to submit the figures directly via an Application Programming Interface (API) from your software system to their portal. They will only allow information to be sent from approved software systems.

When does it start?

July 2019 at the earliest. So don’t panic, there’s still plenty of time! You will not need to start sending information digitally until the end of the first VAT quarter that starts after 1st April 2019. That means the earliest will be July 2019 if your VAT quarter is April-June. If your VAT quarter is May-July then it will be August 2019 and if your VAT quarter is June-August then it will be September 2019. So, whilst the deadline seems close by, you still have at least 5 months from now to be ready.

If your company is part of a VAT group (if you fill in one VAT return covering more than one trading company), there is an option to defer by 6 months for MTD.

Do I need any special software?

You have two options:-

(1) Use a software system approved for MTD. This is the best option and the option preferred by HMRC.

If you don’t currently use a software system to calculate your VAT figures then you should start using one as soon as possible so that you can get used to the system before July. You need to ask your software provider if they plan on making the software compatible with MTD by July.

If you do use a software system to calculate some of your VAT figures but carry out some calculations “off-system” then you should bring your “off-system” calculations into your software system as soon as possible so that all VAT information is inside your software system (“digital”).

(2) Use “bridging” software (spreadsheet that incorporates MTD APIs). This option bridges the gap between digital systems that are unable to connect directly to HMRC and HMRC’s systems.

If you currently use a spreadsheet to calculate your VAT or your current accounting software provider does not link directly to HMRC (but can export VAT return information to CSV file) or you use an array of different software systems to calculate your VAT, you can use bridging software to send your VAT return information to HMRC.

Some bridging solutions are Excel plugins that can connect to HMRC’s systems. But most are simple software systems that allow CSV files to be imported.

What if my systems are not fully digital by July?

HMRC are relaxing the rules regarding digital linking to transaction records end-to-end until March 2020 (known as the “soft-landing” period) to help businesses get up to speed. You will require bridging software to submit VAT returns however you will be able to link any spreadsheet to bridging software for the first year. Alternatively, your accountant may offer a VAT return submission service if they have purchased bridging software.

To ensure you don’t miss any other important MTD notifications we recommend you subscribe to this blog (see option to the right).

Further reading.. See HMRC’s website.

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