Making Tax Digital for VAT

MTD Extension

From April 22 Making Tax Digital (MTD) will be extended to VAT registered businesses with a taxable turnover below £85,000. This follows MTD being introduced in 2019 for larger businesses. If you are in the standard quarterly VAT (quarterly) scheme and your VAT quarter starts 1st April 2022, that will be your first MTD period. Subsequent VAT quarters will follow the same pattern.

If you don’t submit your VAT returns quarterly, your start date might be different. For monthly VAT, your first VAT return under MTD will be for the month of April.

What is Making Tax Digital?

MTD is the electronic submission of VAT returns from approved software which connects directly with the HMRC data centre using something called an API (Application Programming Interface). HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world. The objective is for HMRC to be able to extract transaction data from a VAT registered business. This means it can monitor a business and spot potential issues much sooner. Similar systems are already in operation in various countries and these generally report increased income and more fraud detected.

MTD is transforming tax administration so that is it more effective, more efficient and easier for taxpayers to get it right.

Record Keeping

Bookkeeping records must be kept digitally and submitted via approved software. Most software applications such as Quickbooks, Sage, Kashflow and Xero are able to submit directly to HMRC using the MTD protocol. Other software (eg spreadsheet or desktop) will need to convert data to an acceptable format such as CSV and the MTD information submitted by ‘bridging software’.

You must add all your transactions to your digital records, but you do not need to scan paper records like invoices or receipts. Find out more here about what records you need to keep digitally. The deadlines for sending your VAT returns will not change after you sign up for MTD for VAT.

How to keep VAT Records

You must keep VAT records for at least 6 years. VAT records can be kept on paper, electronically or as part of a software program. Records must be accurate, complete and readable. If you’ve lost a VAT invoice or it is damaged and no longer readable, ask the supplier for a duplicate (marked ‘duplicate’). See the GOV UK website to find out what records you must keep.

HMRC can visit your business to inspect your record keeping and charge you a penalty if your records are not kept in order.

What records do I need to keep digitally?

your business name, address and VAT registration number
any VAT accounting schemes you use
the VAT on goods and services you supply, for example everything you sell, lease, transfer or hire out (supplies made)
the VAT on goods and services you receive, for example everything you buy, lease, rent or hire (supplies received)
any adjustments you make to a return
the ‘time of supply’ and ‘value of supply’ (value excluding VAT) for everything you buy and sell
the rate of VAT charged on goods and services you supply
reverse charge transactions – where you record the VAT on both the sale price and the purchase price of goods and services you buy
your total daily gross takings if you use a retail scheme
items you can reclaim VAT on if you use the Flat Rate Scheme
your total sales, and the VAT on those sales, if you trade in gold and use the Gold Accounting Scheme

If you haven’t already taken steps to ensure compliance with the new regulations, you haven’t got much time to do so. Start now. If you need help and support, don’t hesitate to give us a call (01509 816150), send us an email (enquiries@centralbusiness.co.uk) or use our webform.