Making Tax Digital for VAT (MTDfV) requires businesses with UK VAT registrations and whose taxable turnover exceeds the VAT registration threshold of £85,000 per year to keep records digitally and file their VAT returns using a functional compatible software.
“VAT Notice 700/22: Making Tax Digital for VAT” also provides limited exemptions e.g. under insolvency procedure. Businesses otherwise exempt from the requirement may opt in voluntarily if they wish to.
MTDfV is the first part of Her Majesty's Revenue and Customs (HMRC’s) wider Making Tax Digital (MTD) initiative. HMRC aims to become one of the most digitally advanced tax administrations in the world. The implementation of MTD is seen to transform the UK’s tax administration so that it is more effective, more efficient and easier for taxpayers to get their taxes right.
Digital record-keeping means that the appropriate system must provide a digital journey of VAT records. This includes a sales and purchases transactional listing and a digital VAT account from which the UK VAT return is prepared. Some software will record all your VAT records and accounts information, however, there are some records that by law must be kept and preserved in their original form, either for VAT purposes or other tax purposes.
HMRC lists on its website a number of software providers which have undergone appropriate testing and deemed to adequately meet MTDfV rules and requirements. Businesses are encouraged to speak to their current software providers or to one of the HMRC recognised software suppliers to explore suitability of their IT infrastructure. Whilst HMRC chose VAT to be the first tax type to report under the MTD rules, it is expected that other taxes will follow suit in the near future. Businesses need to consider this when appraising the suitability of their MTD solutions.
HMRC requires a digital link between the submitted returns and source data without manual intervention. A digital link is an electronic or digital transfer, or exchange of data, between software programs, products or applications.
HMRC gave a period of time (known as the soft landing period) during the first 2 years of MTDfV, to help businesses put digital links in place between all parts of their functional compatible software. Businesses were not required to have digital links in place until their first VAT Return period, starting on or after 1 April 2021.
During the soft landing period, if a digital link was not established, HMRC accepted the use of ‘cut and paste’ or ‘copy and paste’ as being a digital links. What remained a compulsory requirement during the soft landing period is the digital link between the VAT return spreadsheet and the bridging software. The bridging software is then used to submit the returns to HMRC via an API platform.
MTDfV will require a change in the way VAT returns are digitally linked and submitted, however, the manner in which the returns are calculated, frequency of returns, as well as deadlines for filings and payments, remain unchanged.
Some milestones are detailed below for VAT return periods commencing 1st April 2021:
For affected VAT reporting businesses, the key considerations are:
Many businesses will need to invest time and resources to ensure compliance with the MTD requirements. Most of the work involved will be in the analysis of existing gaps between the current process vis-à-vis the MTD requirements.
At Sanne, we recognise that the evolving landscape of tax rules and regulations could present challenges to businesses. We have been actively liaising with HMRC, software developers and tax professionals to stay abreast with the developments on MTD. We have partnered with our accounting software provider to ensure that their platform meets the new MTD requirements and that they are on the approved HMRC list.
Our team of Real Assets accountants can provide support to navigate through the new requirements. We can also provide any interim support which might be required to asset managers whom may not have their own solution available in time. For more information, please reach out to Jackie or Maila directly.Real Assets