Making Tax Digital (MTD) for VAT is just around the corner, with HM Revenue & Customs (HMRC) on track to introduce it from April next year.
VAT-registered businesses need to be aware of what MTD for VAT involves, how it will affect them and what they will need to do to prepare ahead of the deadline.
If you are not yet prepared, here are a few things you need to know about MTD for VAT.
What does MTD for VAT involve?
MTD for VAT will require VAT-registered businesses with taxable annual turnover above the VAT registration threshold of £85,000 to:
- Keep digital records.
- Store these records using MTD-friendly software.
- Use this software to file VAT returns with HMRC.
HMRC recently published detailed information regarding the requirements of MTD for VAT here.
When will MTD for VAT take effect?
MTD for VAT will be phased in from April next year and will apply to the first VAT period commencing after 1 April 2019.
Businesses with an accounting period that commences on a different date will still legally have to comply with MTD for VAT, meaning that they may have to change software midway through their accounting period.
Are all VAT-registered entities affected?
Businesses that are VAT-registered but have taxable supplies of less than £85,000 will not be required to comply with MTD for VAT as mandatory.
Similarly, businesses in this position that have voluntarily registered for VAT will also not be required to comply, meaning that such entities can continue to use the VAT Gateway when it comes to filing their VAT returns.
However, such businesses need to tread carefully, as HMRC has previously indicated that it will be monitoring the Gateway in order to ensure it is not used by businesses over the VAT threshold, even though it is yet to confirm exactly how this will be policed.
What is MTD-friendly software?
In recent weeks, HMRC has published a list of software providers that will be offering MTD-friendly software here.
In short, MTD-friendly software is a program or set of programs, products or applications which can record and preserve digital records and provide information and returns to HMRC using its ‘API’ platform.