Q: I am VAT-registered, so how will making tax digital (MTD) impact upon my business?
A: MTD is the biggest administrative change to be made to the UK tax system for businesses since the introduction of self-assessment some 20 years previously.
Unless specifically exempt, from April 2019 all businesses with a UK VAT registration with taxable turnover above the VAT registration threshold, currently £85,000 a year, will need to both maintain digital records and submit VAT returns directly from them.
There are certain requirements for MTD for VAT.
One is for businesses to maintain digital records using what HM Revenue and Customs refers to as functional, compatible software, meaning a software program that can connect to its systems.
Functions required include the ability to keep and preserve records in digital form, create VAT returns from them and provide returns digitally.
Spreadsheets will be considered to be a digital record, but further software is likely to be required for conversion and transmission of data.
Another requirement is for businesses to submit their VAT returns directly from their software rather than by manual entry via the HMRC portal. HMRC would like to see a seamless, digital link from the recording of the transactional data in the digital records through to submission of VAT returns.
There are exemptions for MTD for VAT, however.
Businesses exempt from the requirement to file their returns electronically will similarly be exempt from MTD. Broadly speaking, this includes those who do not use electronic communications due to religious beliefs or if HMRC is satisfied that it is not reasonably practicable for reasons of disability, age, remoteness of location etc.
VAT-registered businesses with taxable supplies below the registration threshold and overseas businesses with taxable turnover below £ 85,000, will not be mandated into MTD for VAT either.
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