The change under Making Tax Digital (MTD) is that business must keep their records digitally and file their vat returns through MTD compatible software.
This applies to businesses with a taxable (explained below) turnover £85,000 or more in 12 months to 31st March 2019. If your business has hit the threshold on 31st March 2019, you must be MTD compliant for the next return period commencing on or after 1st April 2019.
If you are voluntarily registered at 31st March 2019, you do not need to comply with MTD unless you want to again voluntarily do that. In case you subsequent exceed the £85,000 limit in any rolling 12 months period then you must be MTD compliant for the next vat return commencing after the breach.
What income do you count?
• Only count your zero rated, 5% and standard rate income, this includes exports and dispatches of goods.
• Do not count exempt or outside the scope income.
• For example if your turnover is £300,000 per annum which include £70,000 standard rated turnover and rest is exempt sales, MTD is does not apply to you.
Once a business is required to keep digital records, this requirement will remain in place whilst you are vat registered. However if you are voluntarily vat registered and comply with MTD, you may come out if you wish to.
• For those with taxable turnover above vat registration threshold the current exemptions from the digital filing will be extended to MTD where the commissioners are satisfied;
• Your business is run entirely by practising members of a religious society whose beliefs are incompatible with the use of electronic communications, OR
• It is not reasonably practicable for you to use digital tools to keep your business records or submit your returns, for reasons of age, disability, remoteness of location…. OR
• You are subject to an insolvency procedure.
• You have to contact HMRC to request exemption and there is right of appeal where HMRC refuse exemption.
Digital Record Keeping
• Functional compatible software will be used to maintain the mandatory digital records, calculate the return and submit it to HMRC via an API.
• HMRC have provided a list of compatible software which include Xero, Quick Books, Sage, Free agent, IRIS etc. (If you are using currently any software and want to move to any of the compatible software, it is important to note that you can transfer all your data to these software using www.movemybooks.co.uk).
• You can use more than one piece of software to comply with your MTD requirements. There are bridging software available in the market which can transfer the files to HMRC after converting it. These bridging software convert the reports in a shape which can be filled to HMRC.
What Record must be kept digitally?
• Permanent Data – for example name, address, VAT number, scheme used.
• VAT Account – figures and calculations supporting vat return and links between different parts of accounting system.
• Transaction data – recording of all the sales and purchase invoices, for sales invoices you must record the net amount and the vat rate of each rate of vat on the invoice and for purchase you must record the net amount and the amount of input tax being claimed.
There are bridging software available in the market if you are currently non-compatible software. Some are listed below (Neilson James Technology, BTC software, taxcalc, PTP & Avalara etc.).
VAT Quarter end
A final tip for business with vat quarter end date not coinciding with business year end accounts. They should consider changing their vat return quarters in order to be ready for future. At Berkshire Accountants Ltd, we believe that HMRC will require businesses to file other taxes at the same time as VAT return, business with vat quarters ending different from year end accounts will have to submit two separate returns. It may be good idea to change the vat quarters dates so your business is ready for any possible change.
Please note currently if you are looking to switch your accounting software, if you buy the software through us, it will work out cheaper for you. However if you buy direct from these suppliers, their subscription fee is more.
Should like to discuss which MTD software you should go for or you would like to sign up for sign up to our vat return & bookkeeping services, please get in touch with us by clicking here.