I am VAT registered, how will Making Tax Digital impact upon my business?

Q. I am VAT registered, how will Making Tax Digital impact upon my business?

A. Making Tax Digital (MTD) is the biggest administrative change to be made to the UK tax system for businesses since the introduction of Self-Assessment some 20 years previously.

Unless specifically exempt, from April 2019 all businesses with a UK VAT registration, whose taxable turnover is above the VAT registration threshold (currently £85,000 per annum), will need to both maintain digital records and submit VAT returns directly from those records.

There are certain requirements for MTD for VAT. The first main requirement is for businesses to maintain digital records using what HMRC refer to as ‘functional compatible software’. This means a software program that can connect to HMRCs’ systems. The functions must include the ability to keep and preserve records in a digital form, create a VAT return from those records and provide HMRC with the return digitally. Spreadsheets will be considered to be a digital record but further software is likely to be required for the conversion and transmission of the data to HMRC.

The second main requirement is for businesses to submit their VAT returns directly from their functional compatible software rather than by manual entry via the HMRC portal. HMRC would like to see a seamless, digital link, from the recording of the transactional data in the digital records through to the submission of the VAT return from the software.

There are exemptions for MTD for VAT and these include:

Those businesses exempt from the requirement to file their returns electronically will similarly be exempt from the MTD for VAT requirements. Broadly speaking, this includes those who do not use electronic communications due to religious beliefs or where HMRC are satisfied that it is not reasonably practicable for reasons of disability, age, remoteness of location etc.

VAT registered businesses with taxable supplies below the VAT registration threshold, i.e. voluntary registrations, and overseas businesses who, whilst being compulsorily VAT registered have taxable turnover below £85,000, will not be mandated into MTD for VAT. However, once the VAT threshold is reached, and the business is obliged to comply with MTD for VAT, the mandation will continue even if turnover subsequently falls below the VAT registration threshold.

If you are currently keeping manual records we would advise that you start the conversion process to a digital system as soon as possible.

Rennie Welch LLP accepts no liability on the basis of this article and professional advice should always be sought based on specific circumstances. For advice or assistance please contact Kirsty MacDonald at Rennie Welch LLP either by email at kirsty.macdonald@renniewelch.co.uk or by telephone on 01573 224391.

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