Making Tax Digital - what's changing?

Manual accounting records

Current After 1st April 2019
Businesses may record in accounting packages, in spreadsheets or manually.

1. Accounting packages: must be able to file directly to HMRC’s new API platform.

2. Manual records: details of VAT transactions, including sales and purchases, may no longer be stored manually. Instead, VAT registered businesses must adopt software capable of storing accounting records digitally and submitting VAT return totals to HMRC’s API (see above) or API-enabled spreadsheets (see below). Businesses must also be able to provide supplementary data, digitally, and accept details in return from HMRC on compliance details.

3. Spreadsheet records: businesses may no longer submit VAT data manually from spreadsheet maintained records. Instead, some form of bridging software or API-enablement to HMRC’s API digital data platform will have to be adopted.

Required VAT records

Current After 1st April 2019
VAT payers must store VAT transaction details, including sales and purchases, in their ‘VAT Account’ ledger. VAT invoices must be provided for each transaction.

The new proposed amendments to the VAT Act (SI 2018/261) place more arduous requirements for record keeping in electronic form. Many businesses will not presently be recording these details at the transaction level. The electronic accounts must be kept and maintained using functional compatible software. This software must take a form approved by the Commissioners in a specific or general direction. Examples of the changes to records include:

  • Recording varying VAT rates per transaction on sales and purchase transactions.
  • Recording the proportion of VAT to net sales amounts.

VAT filings

Current After 1st April 2019
Today, 88% of UK VAT returns are submitted by manually entering the totals of the nine boxes into the existing UK HMRC portal.

The major change in the MTD reforms will be digital filings of the quarterly (some large taxpayers are monthly) VAT returns for all taxpayers.

MTD will require digital filings to a new HMRC API portal from one of three options with no manual copying or keying of figures:

  1. Enabled accounting or ERP software
  2. Bridging software
  3. API-enabled spreadsheet

Many businesses who purchased accounting software will rely on their providers updating the packages with MTD-filing functionality. But for small businesses with manual or spreadsheet-based records, and large businesses with complex Excel-based prefiling consolidations, investment in the appropriate automation will be required.

Adjustments to VAT returns

Current After 1st April 2019
Manual adjustments to VAT data prior to filings are typically done manually to manual or spreadsheet transaction data. Examples include: correcting numbers; fuel scale charges; and partial exemption calcs.

Digital links will have to be implemented between the original digitally-records transaction data and any adjustment processes. This can be achieved through journal postings directly into the filing accounting package prior to filings. Or, if using bridging software or API-enabled software, through their digital links.

Error corrections

Current After 1st April 2019
Correcting errors in previous VAT returns is done in one of two ways depending on the value of the error: below £10,000, as a correction in the subsequent return; above £10,000 as a separate disclosure return VAT 652.

There will be no change. However, HMRC is likely to change this prior to 1 April, with a digital submission of the VAT 652 error declaration.

Supporting VAT data

Current After 1st April 2019
There is no formalized routine for providing HMRC with additional, supporting data for VAT returns.

Under MTD proposals, data such as the transactions by varying VAT rates (sales and/or purchases) may be able to be uploaded with the nine-box totals.

This may be at the time of filing the quarterly return. But it is anticipated this will be for irregular VAT audits from HMRC.

Businesses below £85,000 VAT threshold

Current After 1st April 2019
Voluntarily VAT registered businesses, below the £85,000 threshold, report under the same rules as those above the threshold.

Voluntarily registered businesses may continue to store and file their transactions manually as they do today. They may opt instead to move to the MTD process.

Annual VAT return filers

Current After 1st April 2019
Businesses with an annual turnover below £1.35m may opt for annual VAT returns only.

Businesses in the VAT Annual Accounting Scheme are exempted from the MTD requirements. They may voluntarily elect to join the MTD filing scheme.

VAT Flat Rate Scheme

Current After 1st April 2019
Businesses opted for the simplified Flat Rate Scheme, levying a lowered VAT rate on just sales with no purchase VAT offset.

Businesses need only comply on digital recording with the new MTD digital rules on their sales and certain capital goods expenditure. However, they must report through the new API platform.

Retail Scheme

Current After 1st April 2019
Retail registered businesses are able to calculate VAT due to HMRC at the standard, reduced and zero rates of VAT as a proportion of daily sales.

MTD obligation will apply, but only to the daily calculation of VAT due, and not at the transactional level.

Margin schemes

Current After 1st April 2019
Businesses registered under VAT margin reporting schemes: second-hand goods, works of art, antiques and collectors’ items.

No change, such businesses will not be required to store and report digitally the additional records required for these schemes.

Non-resident UK VAT payers rules

Current After 1st April 2019
UK VAT registered businesses with no fixed establishment in the UK are able to maintain manual and spreadsheet-based records.

Non-resident companies will become liable to the new digital recording and filings tools, too. They are similarly subject to the same UK VAT registration threshold, currently £85,000 per annum, for this obligation.

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