Making tax digital, the government's new guidelines for online VAT Returns

In line with the recent UK initiatives for online business returns, HMRC have issued complex guidelines for digital VAT returns for business in VAT Notice 700/22 which was issued on 13 July 2018. A brief summary of the guidelines follows below.
 

Summary of guidelines for making tax digital (MTD)

Most businesses with taxable turnover exceeding the current VAT registration threshold of £85,000 need to be registered for VAT returns, and all VAT returns made after 1 April 2019 will need to be in digital format. These digital returns will require use of MTD functional compatible software, and there will no longer be any authorisation for companies to keep manual records or make manual returns.

The type of MTD software used will be compatible with HMRC systems and a good deal more information than currently provided will be required. It will not be possible for businesses to manually input VAT returns onto the HMRC platform and neither will businesses be able to input VAT details from other software packages or data sources into MTD software. All required data will need to be transferred digitally once MTD requirements are fully in place. Businesses will have the ability to cut and paste data into MTD software for the first year this new system is in place; however, VAT periods starting from 1 April 2020 will see this capability removed.

What MTD means for business

At this moment business bookkeeping professionals tend to use manual records, accounting software or spreadsheets or a combination of all three of these for VAT returns. Once the new system is in place they will be required to use appropriate MTD software. Bookkeepers using spreadsheets for VAT returns will need to opt for bridging software or spreadsheets that are API-enabled in order to make digital returns.

The Brexit challenges will also cause some confusion for businesses trading with the EU, as there is still uncertainty surrounding ways VAT will be handled.

HMRC has published a list of the software developers that have successfully tested MTD software, including bridging software and API-enabled software. This will be updated and an "approved software" list will be published following public testing of the new system in autumn 2018.

srb Associates are accountants in Melton Mowbray. We provide a professional bookkeeping and accounting service to business clients in the area and nationally via our online service. Get in touch if you need expert assistance with making the changeover to digital VAT returns.