A new timetable for Making Tax Digital – VAT to the fore

On 13 July 2017, the UK Government announced major changes to the timeline for the implementation of Making Tax Digital (MTD). Under the new timetable:

  • only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records and only for VAT purposes. They will only need to do so from 2019.
  • the smallest businesses will not be required to use the system, although they can choose to do so voluntarily.
  • for taxes other than VAT businesses will not be asked to keep digital records, or to update HMRC quarterly, until at least 2020.

Proposals will be put in place when changes are brought forward as part of the Finance Bill, expected to be published soon after the Parliamentary Summer recess. HMRC have provided updated information here.

Significant changes to VAT reporting

Record keeping and quarterly reporting for MTD purposes will be significantly different from current VAT record keeping and quarterly reporting. Although the majority of VAT registered businesses report their VAT figures online, this is only via manual input of final figures onto HMRC’s VAT Online system. MTD will require businesses to use accounting software that can link directly to HMRC’s systems. Businesses will no longer be able to keep manual records.  As the use of spreadsheets in VAT accounting is commonplace, (typically to correct the output from accounting software and to operate partial exemption and other VAT schemes), these challenges should not be underestimated.

Timing

MTD for VAT is expected to take place at the same time as the UK leaves the EU (April 2019). Uncertainty around the VAT treatment of transactions between the UK and EU will inevitably arise, and businesses will need to both understand the tax-technical changes to the rules, and ensure that their accounting systems deal with such transactions correctly.