MTD for VAT

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MTD for VAT: Kick-Off Date and Getting Prepared

With the objective to make it easier for VAT-registered “businesses to get their tax right and keep on top of their affairs,” the HM Revenue & Customs department has made a special initiative – Making Tax Digital for VAT – to make the tax system more effective, efficient and easier.

This blog provides detailed information on what is MTD for VAT, what the deadline is and how to bring changes to your business processes to ensure you are on track.

What is Making Tax Digital for VAT?

 Making Tax Digital (MTD) for VAT is HMRC’s new regulation that requires all VAT-registered businesses operating in the UK and having a taxable turnover above the VAT registration threshold of £85,000 to maintain their records digitally and use advanced software to submit VAT returns.

While there are many businesses that already keep their records digitally, the key requirements under MTD are:

  • The software should be able to maintain all records as per the regulations
  • It should be capable of preparing VAT returns using the data available in the digital records
  • Using its Application Programming Interface (API) platform, the software should be able to communicate digitally with HMRC

As a part of the VAT pilot project, certain VAT-registered businesses are deferred from this new legislation. This includes all customers falling into any one of the following categories: ‘not for profit’ organisations that are not registered as a company, trusts, VAT groups, VAT divisions, local authorities, overseas traders, annual accounting scheme users, and public corporations. This also includes public sector entities like NHS Trusts and government departments who must provide additional information on their VAT returns. It further includes those businesses or entities required to make payment on account.

MTD for VAT – The Start-Off Date

As outlined by HMRC earlier in 2018, Making Tax Digital for VAT will be effective from 1 April 2019. This will be mandatory for all customers except those who have been deferred by HMRC.

A 6-months deferral period is applicable to a small set of VAT-registered businesses and entities having complex requirements (refer above). HMRC has decided to delay mandatory MTD implementation for these customers until 1 October 2019. This will give them more time to test the service and prepare for the same before it is made compulsory for them to join.

Making Tax Digital for VAT – How to Prepare?

While HMRC makes an effort to make the tax system effective, efficient and easier, the new legislation will come as a major challenge for businesses that use a manual system to manage their tax affairs and accounts. However, if you are little methodological in your approach, embracing the change will not be a big hassle.

Here are some quick guidelines for you:

  • Evaluate your current infrastructure and technologies. Determine what kind of software application you would need that complies with MTD for VAT. Make sure you test these applications to decide upon stability, accuracy, and reliability. If you are already using an accounting service, check whether or not it is approved by HMRC.
  • Communicate the ‘change’ with your staff members. Use the knowledge and expertise of an accounting professional or bookkeeper.
  • Once the testing is complete and you have consulted an expert accountant, move your records to the new system.

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