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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. The vast majority of businesses will need to do this for VAT periods starting on or after 1 April 2019. Businesses with a taxable turnover below the VAT threshold can also sign up for MTD for VAT voluntarily.
The MTD pilot for VAT started in April 2018 and is now open to VAT businesses and their agents. If you are eligible, joining the pilot now will help you prepare for these changes sooner and your feedback will also help to shape the service as it continues to develop.
If you have an agent, you should speak to them to find out when it may be best for you to join the pilot. It’s important that you have the appropriate software package, so if you already use accounting or record keeping software you should also speak to your software provider to find out when it will be updated for MTD.
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), you must keep digital business records and send your VAT returns to HMRC using MTD-compatible software. For the vast majority of businesses this applies to accounting periods starting on or after 1 April 2019.
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 HMRC your 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.
For a small minority of businesses that have more complex requirements, we have made the decision to defer mandation by 6 months to ensure there is sufficient time for testing the service with them in the pilot before they are mandated to join. These businesses have until 1 October 2019 to start keeping records digitally and using MTD-compatible software to send their VAT returns to HMRC.
This applies to those that fall into one of the following categories: trusts, ‘not for profit’ organisations that are not set up as a company, VAT divisions, VAT groups, those public sector entities required to provide additional information on their VAT return (such as government departments and NHS Trusts), local authorities, public corporations, traders based overseas, those required to make payments on account and annual accounting scheme users. The deferral will apply to around 3.5% of mandated customers.
VAT-registered businesses are able to join the MTD pilot now . If you are not currently eligible to join, our timetable explains when we expect the pilot to be open for your business.
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’ve published details of the VAT and Income Tax software available for MTD.
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 VAT accounting 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.
Finding out what software is available for MTD
We’ve published details of the VAT and Income Tax products that are currently available and will be adding to this in the coming months as the pilots progress and more products become available.
HMRC launched a voluntary MTD pilot for Income Tax in spring 2018 and you may want to consider joining this. Read about how to join the MTD pilot and about using software to send Income Tax updates.
You can find out which software is already available to send Income Tax updates for MTD on GOV.UK.
You can find more help and support for MTD on GOV.UK, including webinars and a video.