Making Tax Digital (MTD) Update
Wednesday May 2018
The regulations come into force on 1 April 2019 for all VAT registered businesses with turnover above the VAT threshold.
The earliest MTD requirements for all other taxes (income and corporation) will be from the 1 April 2020. Software pilots are in progress and we will keep you updated if this date moves and what the requirements will be.
Software requirements for MTD – a quick summary
There has been a lot of discussion about what is and what is not “Digital” and what is meant by “Functional Compatible” software.
HMRC have issued guidance notes on “VAT Customer journeys” and these can be found at:
Software must be able to:
- Keep records in a digital form.
- Preserve digital records in a digital form.
- Create a VAT return from the digital records.
- Provide HMRC with VAT data on a voluntary basis.
- Receive information from HMRC via the API (application programme interfaces) platform. This will allow HMRC to send ‘nudges’ to the business/agent.
The major Cloud providers software will comply with the above requirements.
Spreadsheets – These are permitted as a method to keep records, provided they are combined with third-party commercial software, using APIs to ensure a seamless flow of data from the business to HMRC (and vice versa).
Digital record keeping requirements – HMRC has stated that the requirement to keep digital records does not mean that businesses will have to make and store invoices and receipts digitally. Businesses can continue to keep documents in paper form if they prefer, although transactions will need to be stored digitally.
VAT Account – This is the link between business records and the VAT return. Under MTD for VAT, the information required to be held in the VAT account must be kept digitally (the regulations refer to this as the “electronic account”), and the information in that electronic account will be used by functional compatible software to calculate and fill in the VAT return.
Other information – what we know so far
Amendments – The existing error correction rules will apply under MTD.
Monthly and other schemes – clients will still be able to submit monthly and non-standard returns under MTD and can provide information more frequently than quarterly.
Flat rate scheme – users will still be able to use the flat rate scheme under MTD. This means digital records of purchase invoices will not be required (unless capital items which cost more than £2,000 including VAT).
Annual accounting scheme – Users will continue to send in one annual VAT return.
Retail scheme – users will be able to record gross daily takings rather than individual transactions.
Length of retention of records – VAT records must be kept for six years (or 10 years with VATMOSS). Digital records will need to be maintained for six years following deregistration.
As always we will keep you up to date as events unfold.
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