The government is taking some steps to ensure a smooth transition to a digital tax system. HMRC are fully committed to supporting businesses in this transition, with the goal of becoming one of the most digitally advanced tax administrations in the world.
HMRC has already begun the pilot of this digital service. HMRC’s Making Tax Digital for VAT (MTD for VAT) pilot is currently open to sole traders and companies who have simple VAT accounting. HMRC will allow a small number of VAT registered entities to defer complying with the requirements of MTD for VAT by six months. These include VAT groups, annual accounting scheme users and public sector entities.
The timetable for MTD for VAT is:
- From 1 April 2019, VAT registered businesses, trading above the £85,000 VAT registration threshold must prepare their VAT returns due from 1 April 2019 using compatible software;
- In the initial stages of MTD for VAT, HMRC simply wants you to submit a VAT return via software (chosen by the taxpayer) and not by using HMRC’s VAT portal. The final VAT return will be used to submit any adjustments or amendments to the VAT return and will also be submitted via software.
The software which businesses use must be capable of keeping and maintaining the records specified in the regulations, preparing their VAT Returns using the information maintained in those digital records and communicating with HMRC digitally. Once you have submitted your return, you will receive confirmation through your software that it has been received.
More information on software compatible with MTD for VAT is available on HMRC’s website.
Who can defer MTD for VAT entry?
Following an announcement by HMRC, taxpayers who are allowed to defer entry into MTD for VAT until 1 October 2019 are as follows:
- ‘Not for profit’ organisations that are not set up as a company;
- VAT divisions and VAT groups;
- Public sector entities required to provide additional information on their VAT return (Government departments, NHS Trusts);
- Local authorities;
- Public Listed companies;
- Overseas based traders;
- Traders required to make payments on account; and
- Annual accounting scheme users.
If you are a VAT registered business, trading over the VAT registration threshold (currently £85,000) and you do not fall into one of the deferred categories, you must keep records digitally and use software to submit VAT returns from 1 April 2019.
Under the MTD regime, even if the taxpayer uses an agent, there will be specific tasks that the taxpayer needs to undertake themselves. The tasks will include receiving emails from HMRC, agent authorisation requests and possibly other actions that require the taxpayer to log in to their business tax account.
Filing exemptions and exclusions
There are exemptions for those unable to make electronic returns due to religious reasons or because of age, disability, remoteness of location or any other reason.
Guidance on who can apply for an exemption is available on the HMRC website.
This publication has been prepared by Robinson Reed Layton LLP. It is to be treated as a general guide only and is not intended to be a comprehensive statement of the law or represent specific tax advice. No liability is accepted for the opinions it contains, or for any errors or omissions. All rights reserved.