Making Tax Digital for VAT

If your accountant hasn’t mentioned this yet, then you really ought to have a new accountant.

Does this affect me?

Are you VAT registered? Then if so, yes. This does affect you and you need to be considering whether you will be compliant in time.

Making Tax Digital

What is it?

Making Tax Digital for VAT requires VAT registered businesses with taxable turnover above the VAT registration threshold to keep records in digital form and file their VAT Returns using software.

It is increasingly common for business records and accounts to be kept digitally, in a software program on a computer or tablet, or in a smartphone application, or maintained through such a device and stored using a cloud-based application. The difference under Making Tax Digital is that 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 via our Application Programming Interface (API) platform.

If your digital records are up to date, software will be able to collate and prepare your return for you. It will then show the return to you and ask you to declare that it is correct and confirm that you want to submit it to HMRC. Once you have submitted your return you will receive confirmation through your software that it has been received.

Not all software is compliant, contact us to find out if your current software will be compliant and whether you need to take any additional step.

When does this start?

With effect from 1 April 2019, if your taxable turnover is above the VAT registration threshold you must follow the rules set out in this notice. If your taxable turnover subsequently falls below the threshold you will need to continue to follow the Making Tax Digital rules, unless you deregister from VAT or meet other exemption criteria (see paragraph 2.2 of this notice).

Only businesses with taxable turnover that has never exceeded the VAT registration threshold (currently £85,000) will be exempt from Making Tax Digital. You will therefore need to keep an eye on your taxable turnover, especially if you think it is close to the VAT registration threshold.

The Making Tax Digital rules apply from your first VAT period starting on or after 1 April 2019. A ‘VAT period’ is the inclusive dates covered by your VAT Return.

Here are some examples.

Example 1 – Existing business with taxable turnover above the VAT registration threshold on 1 April 2019

A business submits a quarterly return covering the period 1 March to 31 May 2019. The business taxable turnover exceeds the VAT registration threshold and therefore the business will need to comply with Making Tax Digital rules for the period starting 1 June 2019.

Example 2 – Business with a taxable turnover above the Making Tax Digital threshold at the point they need to register for VAT

A business that is not registered for VAT is required to register from September 2019 because the taxable turnover over the previous 12 months has exceeded the VAT registration threshold. The business must follow the rules in this notice for all VAT Returns they are subsequently required to make as their taxable turnover was above the VAT threshold when they were required to register.

Example 3 – VAT registered business with taxable turnover below Making Tax Digital threshold until November 2019

A business is registered for VAT but its taxable turnover is below the VAT registration threshold until November 2019. The business must follow the rules in this notice for any VAT period that starts on or after 1 December 2019 as its taxable turnover now exceeds the VAT registration threshold.