From April 2019 all businesses registered for VAT and with a turnover (of VAT able supplies) over £85,000 per year will be required to:
- keep their accounting records in a digital format (a software product or spreadsheet), and
- use compatible software (that can access HMRC’s API platform) to submit their VAT returns.
This represents a major change for some businesses and is the first step in the move to digitalise all tax accounting. Not only does it impact the method by which your VAT returns are submitted to HMRC but it also extends into your bookkeeping processes. The aim is to make the administration of tax affairs more effective, more efficient and make it easier to get our tax affairs right.
The was a recent announcement that there will be a deferral of this deadline to October 2019 for certain businesses (namely; trusts, ‘not for profit’ organisations that are not set up as a company, VAT divisions, VAT groups, certain public sector bodies, traders base overseas and those required to make payments on account and annual accounting scheme users). HMRC estimates that around 3.5% of businesses will fall into this deferred population.
What does this mean for businesses?
The changes relate to the way in which you record and store information relevant to your VAT returns and the way in which you submit those returns, many businesses are therefore viewing this as an IT change. The starting point is to acquire a suitable compatible software product to maintain your business’ books and records and to submit your VAT returns to HMRC. The alternative is to appoint an agent to do this for you.
It is important to note that no changes are being made to the underlying VAT rules, the filing and payment deadlines aren’t changing, and the VAT return submitted to HMRC will contain the same information that it does now. In addition, businesses can continue to use and keep documents such as invoices and receipts in paper form, but each transaction will need to be recorded digitally. This means that it will still be acceptable for the digital records to be created at quarterly intervals (in advance of your VAT return being submitted) by you, your book keeper or your tax agent, however, it would be good practise to record these as close to real time as possible.
These changes will need to be in place (and ideally tested) prior to the start of the first VAT period beginning on or after 1 April 2019 (if not within the deferred population).
HMRC have confirmed that records can be maintained in more than one software system (including spreadsheets), however, there must be digital links between each piece of software – you will no longer be able to re-key information from one system into another. HMRC have confirmed that they will not enforce the digital link requirements for the first year of making tax digital as they acknowledge that more time is needed to develop digital links between systems.
The key requirements for your software to comply are listed below:
- Keep records in a digital form (records include.
- Preserve records in a digital form.
- Create a VAT return from the digital records.
- Provide HMRC with VAT returns and voluntary information by using the API (application program interface) platform.
- Receive information from HMRC using the API platform. This will include messages about a requirement to file and confirmation of successful filing and will allow HMRC to send ‘nudge’ messages to the business/agent.
For more information on how to comply with this change or on how we can help you with your VAT compliance please get in touch with our accounts team
Group Compliance Director
Matt Fryer is a chartered tax advisor with a specialism in the freelance contractor sector advising contractors on how to structure their affairs and recruitment businesses and end hirers on the effective management of their contractor payroll.
Read more from Matt Fyer on the Brookson One website