Making Tax Digital for VAT
Making Tax Digital (MTD) for VAT requires VAT-registered businesses with taxable turnover above the VAT registration threshold (currently £85,000) to keep records digitally and submit their VAT Returns using MTD software. The majority of businesses will need to do this for VAT periods starting on or after 1 April 2019.
When MTD for VAT will be mandatory for your business
If your business's taxable turnover is above the VAT registration threshold of £85,000, you will most likely have to submit VAT returns via the MTD service from the period starting on or after 1 April 2019.
If your taxable turnover drops below the VAT registration threshold at any point after 1 April 2019, you’re still required to continue to keep digital records and send HMRC your VAT returns using MTD-compatible software. This obligation doesn't apply if you de-register from VAT or are exempt from MTD for VAT. Further information can be found on HMRC’s VAT Notice 700/22.
For a small minority of businesses that have more complex requirements, HMRC has made the decision to defer mandation by six months to ensure there is sufficient time for testing the service with them in the pilot before they are mandated to join. These businesses have until 1 October 2019 to start keeping records digitally and using MTD-compatible software to send their VAT returns to HMRC.
This applies to those that fall into one of the following categories: trusts, ‘not for profit’ organisations that are not set up as a company, VAT divisions, VAT groups, those public sector entities required to provide additional information on their VAT return (such as government departments and NHS Trusts), local authorities, public corporations, traders based overseas, those required to make payments on account and annual accounting scheme users.
What happens if your taxable VAT turnover is below the VAT MTD threshold
If your business has a taxable turnover below the VAT threshold you can still sign up for MTD voluntarily. HMRC is encouraging businesses with a taxable turnover below the VAT threshold to sign up so they can also benefit from MTD. Businesses can also sign up for MTD for Income Tax. This means, subject to your business type, you can further streamline your business processes.
Software will help you stay on top of business record keeping, allowing you (and your agent, if you have one) to better understand how your business is performing.
What your business needs to do to be ready to sign up for MTD for VAT
If you don’t already, you’ll need to start keeping digital records. This can be via a spreadsheet or cashbook/bookkeeping software. A spreadsheet can be used to calculate or summarise VAT transactions to arrive at the return information you need to send to HMRC.
Take a look at our useful Step by Step Guide for Businesses for more information.
Records that you need to keep digitally for MTD for VAT
MTD does not require you to keep additional records for VAT, but to record them digitally.
Your digital records should include, for each supply, the time of supply (tax point), the value of the supply (net excluding VAT) and the rate of VAT charged. They should also include information about your business, including business name and principle business address, as well as your VAT registration number and details of any VAT accounting schemes you use.