MTD Technical Page

From 1st April 2019, if your taxable turnover is above the VAT threshold your business must adhere to the new ‘Making Tax Digital’ (MTD) rules. MTD has been ‘deferred’ for six months until 1 October 2019 for a select few with complex tax affairs falling within the categories below:-

  • Trusts;
  • Unincorporated charities;
  • VAT divisions;
  • VAT Groups;
  • Local authorities certain public sector bodies;
  • Public corporations;
  • Non resident traders;
  • Those required to make payments on account; and,
  • Annual accounting scheme users.

Who is affected?

Businesses with taxable turnover in excess of the VAT threshold, currently £85,000, will have to comply with the new MTD regulations. Please note, this does not apply to turnover that is exempt from VAT.

Taxable turnover relates to standard rated, reduced rated and zero rated turnover and does not include exempt or ‘outside of the scope’ turnover for VAT.

Businesses with a taxable turnover that have never exceeded the VAT threshold will be exempt from MTD but can opt in to do so. If your turnover subsequently exceeds the threshold after the commencement of MTD, you will be required to comply with the regulations for your first VAT return beginning on or after 1 December 2019.

Businesses not registered for VAT as at 1st April 2019 who subsequently exceed the threshold must register for VAT and comply with MTD from their first VAT return.

You may also be ‘digitally excluded’ from MTD for VAT if you meet one of the exemptions listed below:-

  • You have (and all working for you) religious beliefs incompatible with the use of electronic communications;
  • It is not reasonably practical due to age, disability, remoteness of location or for any other reason; or,
  • You are subject to an insolvency procedure.

What are the changes?

The new MTD regulations require VAT registered businesses (or the ‘taxable person’) with a taxable turnover in excess of the VAT threshold to keep records in digital format and file their returns using MTD compliant software or bridging software.

Businesses will no longer be able to use manual records to maintain certain records and accounts. MTD compliant software should be used to maintain the records and report to HMRC the data held in the records by using HMRC’s Application Programming Interface (API) platform.

Digital records do not need to be maintained within one software, however, if a set of software programs are used to calculate and report VAT, there must be a ‘digital link’ between the pieces of software going forward.

Businesses will have to create their own digital tax account with HMRC with the existing HMRC portal being phased out.

Designatory data such the name, address of principal place of business, VAT registration number and VAT scheme used (if any) must be maintained in the software.

For supplies made (sales) and received (purchases), businesses will need to record the value of the supply, the time of the supply (tax point) and the rate of VAT charged if more than one rate of VAT is charged on an invoice.

What is a Digital Link?

A digital link is a link between software’s, products or apps through which information is transferred electronically without the need of manual intervention. Cutting and pasting of information will not count as a digital link!

HMRC have provided the following list of acceptable digital links:-

  • emailing a spreadsheet containing digital records to an accountant so that they can import the data into their software to carry out a calculation (for instance, a Partial Exemption calculation)
  • transferring a set of digital records onto a portable device (for example, a pen drive, memory stick, flash drive) and physically giving this to an accountant to import that data into their software
  • XML, CSV import and export, and download and upload of files
  • automated data transfer
  • API transfer

Please note, this is not an exhaustive list. There will be a ‘soft landing period’ for businesses to have in place all digital links between functional software for VAT.

Examples of where digital links are required:

When does this start?

The new regulations apply from your first VAT return starting on or after 1 April 2019. Please see below to help you work out your first period of return applying to the new regulations:-

VAT period end First return to apply MTD Filing deadline
March, June, September and December Quarter ended 30 June 2019 7th August 2019
January, April, July and October Quarter ended 31 July 2019 7th September 2019
February, May, August and November Quarter ended 31 August 2019 7th October 2019
Monthly Month ended 30 April 2019 7th June 2019
Annual Year ended 31 October 2020 31 December 2020

VAT schemes

There are specific rules/exemptions that apply to businesses using VAT schemes – please contact your relationship manager for further information if this impacts you.

How Barnes Roffe can help you

We have become increasingly aware that some software providers are charging significant additional fees for the provision of API enabled software.

There is no need for you to worry about upgrading/changing your existing software to API enabled software.  Whatever format your VAT records are maintained in, Barnes Roffe will be able to prepare/submit your VAT returns on your behalf.

Please contact us to discuss your individual needs and specific advice on how we will be able to help you.

Download Barnes Roffe Making Tax Digital Key Guide Talk to Barnes Roffe today Barnes Roffe – Clever Accountants for Business Barnes Roffe has tried to ensure that the contents and information it provides in its website is accurate at the time of posting. Unfortunately it cannot guarantee the accuracy of contents or information contained in its pages and any person choosing to act on this information should contact a Barnes Roffe partner prior to taking any action
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