The first stage of Making Tax Digital (MTD) will apply to all VAT registered businesses who are over the VAT turnover threshold (£85,000 until March 2020) from the first VAT return which starts after 1 April 2019. HMRC have now published the draft regulations, an Explanatory Note, a new Draft VAT Notice and an Addendum document outlining ‘user journeys’. All the documents can be accessed via Gov.uk here
The draft regulations provide that VAT registered businesses (including charities) must keep an electronic account of information specified in the amended regulations, and must use an approved form of software to prepare and render VAT returns.
The main and important news is that information transfer between internal interfaces and with HMRC must be digital (and via third party software) where the records are part of the Making Tax Digital for Business (MTDfB) journey, but adjustments (such as partial exemption) will still apparently be able to be calculated separately and manually – i.e. this step is not part of the ‘MTDfB journey’. It is noted that the information to be recorded also includes a requirement to separately identify the value of income into standard rated, reduced rated, zero-rated, exempt or outside the scope outputs. HMRC plans a “soft landing” in the first year to allow organisations to transition to the new rules.
These proposals (particularly re digital links) appear to be slightly different from those outlined by HMRC when last they met with tax representative organisations outlined here.
The draft regulations provide for exemptions from the digital requirements based on turnover, inability to use electronic systems for religious or practical reasons, and for businesses subject to insolvency. Exempted businesses may opt for the obligations in the regulations to apply to them if they so wish. The amended regulations also provide rules for how business records should be preserved.
Businesses can sign up to take part in a MTD pilot exercise from 1 April 2018. The benefit of taking part in the pilot will be being ahead of the game, getting access to support, being kept up to date on how the system is developing, an opportunity to influence the look and feel of the final version, and feedback on how you are getting on with the submissions. There is more information on the pilot here but please contact us if you need more help.