Making Tax Digital for VAT

Making tax digital

What does it mean?

Making Tax Digital (MTD) will mean that you cannot log on to HMRC’s website and file the VAT return. You have to file the VAT return directly from your accounting software. The accounting software must contain all your transactions in digital form, or must be digitally linked to other software that contains all your transactions.

When will MTD apply to you?

It will apply to you if you are already VAT registered and if you are trading over the VAT registration threshold of £85k per annum. If this is the case then you or your company, charity, or co-operative are within MTD from 01/04/19.

However the government has delayed MTD until 01/10/19 for certain entities. This includes:

>> VAT groups

>> Not for profit entities that are not registered at Companies House

What about this letter I received from HMRC?

You may well have received a letter stating that you fall within MTD for VAT from 1 April 2019 or 1 October 2019. HMRC have stated that there will be no follow up on these letters so they are essentially advisory. If you have received one that says you should file under MTD from 1 April 2019, but you think it should be 1 October 2019 because you are a community benefit society (for example) then you can simply apply MTD from 1 October 2019.

Digital links

Many organisations, particularly retailers, do not enter all their transactions onto their accounting software. They use tills or a webshop to record thousands of small transactions with customers, and only totals are posted onto the accounting software. This is potentially a nightmare, but fortunately there are two mitigations:

>> The soft landing

>> A retail scheme

Soft landing

This means that for the first year of operation – until 31 March 2020 – HMRC will not require there to be a digital link between your sales system and your accounting software. If you are first mandated into MTD on 1 October 2019, then the soft landing ends on 30 September 2020.

Retail scheme

If you are using a retail scheme then you do not need to enter all the transactions on your accounting software.

If you are using the point of sale scheme then:

– your till or other sales system must add up your zero rated sales, reduced rated sales and standard rated sales separately

– every day, you must enter your total sales including relevant VAT onto the accounting software

Retail scheme and soft landing combined

If you use a retail scheme and are taking advantage of the soft landing, then you just need to make sure that by 01/04/2020 (or 01/10/2020) your sales system is capable of generating daily totals that can be uploaded digitally to your accounting software. The digital link can be an API, or it can be a csv file that is exported from one and then imported into the other without further manipulation, and without typing any numbers into the accounting software.

Petty cash and MTD

All transactions have to be kept in digital form. So you can no longer summarise petty cash transactions on a spreadsheet and post them as a single transaction on the accounting software. Each petty cash transaction needs to be entered as a petty cash expense. If this is annoying, then consider the following:

>> Don’t use petty cash any more and use employee expense claims instead (see below); or

>> Use top up cards which automatically update your accounting software – such as expend.

HMRC is being lobbied to allow petty cash summaries to be posted to accounting software. Our advice is to change nothing until the end of your soft landing period, by which time HMRC may have relented on this point.

Employee expenses and MTD

Luckily, where an employee makes an expense claim for several items purchased on behalf of the company, this is one single transaction as far as MTD is concerned. You do not need to record each individual expense item separately on the accounting software.

Further information

VAT notice 700/22

MTD stakeholder communications pack

Or get in touch if you have any questions. We will be happy to help.

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