Making Tax Digital – Mandatory digitisation of VAT comes into force on 1 April 2019
Making Tax Digital is a government initiative aimed at digitalising the administration relating to accounting records. This initiative will apply to both individuals and businesses, with VAT being the first tax selected for mandatory digitisation with effect from 1 April 2019, with mandatory digitisation of Income Tax and Corporation Tax to follow with effect from April 2020, at the earliest.
What does Making Tax Digital mean to businesses?
From 1 April 2019, businesses (including unincorporated businesses, partnerships, companies, LLPs, trusts, non-UK businesses registered for UK VAT and charities) with a turnover above £85,000 will be required to:
• maintain accounting records digitally in a software product or spreadsheet; and
• submit VAT returns to HMRC using a functional compatible software product that can access HMRC’s API (Application Program Interfaces) platform.
No changes are being made to:
• any other rules relating to VAT other than those that relate to record keeping and filing;
• the amount of information to be submitted to HMRC; and
• the current filing and payment deadlines.
What records must be kept digitally?
The following records must be kept and maintained in digital form:
• your business name, principle place of business, VAT registration number and details of any VAT accounting schemes used; and
• for supplies made or received, the time of supply (tax point), the value of the supply, together with the rate of VAT charged for supplies made and the amount of input tax that will be claimed for supplies received.
Additional records such as invoices will also need to be kept, but these do not need to be kept digitally.
How are records to be kept?
The records stated above are to be kept digitally within functional compatible software. Functional compatible software is any software program that is able to:
• record and preserve digital records;
• provide the information and returns from data held in those digital records, using the API platform, to HMRC; and
• receive information from HMRC via the API platform.
HMRC have prepared a list of software products that will be able to perform all of the functions listed above.
Are there any exemptions?
Businesses are not required to follow the Making Tax Digital provisions where HMRC is satisfied that:
• the requirements of the provisions are incompatible with the religious beliefs of those running the business;
• it is not reasonably practicable for business records to be kept or returns to be submitted digitally for reasons of age, disability, remoteness of location, or for any other reason;
• the business is subject to insolvency procedures.
Where do I start?
We would recommend that you:
1. Ensure that the business and key members of staff are familiar with the new responsibilities;
2. Review internal processes to identify any improvements that can be made to help your business to adapt to the new provisions;
3. Consider whether a suitable software product would need to be obtained, or whether any updates would need to be made to software currently in place;
4. Consider appointing an agent such as an accountant, to keep and maintain digital records and submit returns to HMRC on your behalf.
Rix & Kay’s Corporate lawyers work with businesses of all sizes providing the full range of corporate support services. For more information on making your tax digital please contact Bunmi Idowu