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VAT - Making Tax Digital

Making Tax Digital for VAT (MTDfV) fundamentally changes the way in which businesses keep VAT records and submit VAT returns. At Page Ivy, we can provide guidance on the key aspects of MTDfV and the implications for your business in the Chesterfield area.

Over the coming years, the government will phase in its landmark Making Tax Digital (MTD) initiative, which will see taxpayers move to a fully digital tax system.

This factsheet outlines some of the key issues for businesses.

Making Tax Digital for Business

Making Tax Digital for Business (MTDfB) was introduced in the 2015 Spring Budget. The government’s ‘Making Tax Easier’ document was published shortly after, and outlined plans for the ‘end of the tax return’. It also set out the government's vision to modernise the UK’s tax system, with digital tax accounts set to replace tax returns for ten million individuals and five million small businesses.

Revised timescales

However, industry experts and those within the accountancy sector expressed concerns over the proposed pace and the scale of the introduction of MTDfB, and, as a result, the government amended the timetable for the initiative’s implementation, to allow businesses and individuals ‘plenty of time to adapt to the changes’.

MTDfB, starting with VAT, took effect from 1 April 2019, as summarised below.

Making Tax Digital for VAT (MTDfV)

Under the rules, all VAT registered businesses must keep digital records for VAT purposes and provide their VAT return information to HMRC using MTD functional compatible software.

Only a small handful of businesses are exempt from complying with MTDfV. Please contact us if you believe your business may be exempt. The only automatic exemptions arise where a business is already exempt from filing VAT returns online or it is formally insolvent.

HMRC also has discretion to grant exemption in very limited circumstances, such as if they are persuaded a business is unable to use a computer, software or the internet for reasons such as disability, location or on religious grounds. Businesses are able to make an appeal against a HMRC refusal of exemption.

MTDfV 2022

Since April 2022 MTDfV has been mandated for all VAT-registered businesses. This means that even voluntarily registered businesses, trading below the current £85,000 compulsory VAT registration threshold, must keep the requisite digital records and file digitally. If this affects you, and you would prefer to consider deregistering for VAT, we are happy to discuss this with you.

VAT returns

Those businesses that fall within the scope of MTDfV are required to submit their VAT returns using software compatible with the MTDfV regulations. Information will be extracted from the digital records in order to populate the VAT return.

The changes introduced as part of the MTDfV project do not affect the statutory VAT return deadlines or payment dates, and businesses that choose to submit VAT returns monthly or annually can continue to do so.

Using third party software and keeping digital records

HMRC do not provide MTDfV software, and manual record keeping is not acceptable. Businesses must keep specified records in ‘functional compatible software’, which calculates the VAT return and submits it to HMRC via an Application Programme Interface (API).

HMRC acknowledges there are different ways to do this. However, the transfer of data to HMRC, from the mandatory digital records to the filing of the return, must be entirely digital. HMRC has published VAT Notice 700/22: Making Tax Digital for VAT setting out requirements in more detail.

The VAT notice defines functional compatible software as a ‘software programme or set of compatible software programmes which can connect to HMRC systems via an API’ which must be capable of:

  • keeping records in digital form as specified by the MTDfV rules
  • preserving digital records in digital form for up to six years
  • creating a VAT return from the digital records held in compatible software and submitting this data to HMRC digitally
  • providing HMRC with VAT data on a voluntary basis
  • receiving information from HMRC via the API platform.

Records to be kept digitally are specified in the VAT Notice. They include ‘designatory data’; the VAT account linking primary records and VAT return; and information about supplies made and received including the different rates of VAT applicable. For supplies received, the amount of input tax to be claimed is also needed.

MTD is not completely paper-free, and it does not mean businesses are mandated to use digital invoices and receipts. However the actual recording of supplies made and received must be digital. Where invoices and receipts aren’t held digitally, they should be kept in hard copy as usual for VAT purposes.

Software issues

The digital records required for MTD don’t have to be held in one place or one programme. Businesses can keep digital records in a range of different compatible digital formats. The use of spreadsheets is allowed, in combination with add-on MTD software.

From 1 April 2021, where digital records are kept in more than one programme, or where add-on programmes are used, all programmes should be linked digitally. VAT Notice 700/22 defines these digital links.

Digital links

A digital link is a transfer or exchange of digital data between software programmes, products or applications. Where a set of software products is used, there must be digital links between them, and once data is entered into software, any further transfer or modification must be via digital link.

Manual data transfer is not allowed under MTD. An example would be noting details from invoices in one ledger, then using that handwritten information to manually update another part of the functional compatible software. Copying by hand or manual transposition of data between two or more pieces of software and 'cut and paste', or 'copy and paste' is not acceptable.

The VAT Notice outlines acceptable digital links, including:

  • linked cells in spreadsheets
  • emailing a spreadsheet with digital records to an agent for the agent to import data into software to make a calculation, such as a partial exemption calculation
  • transferring digital records onto portable devices (pen drive, memory stick) and giving these to an agent
  • XML, CSV import and export, download and upload of files
  • automated data transfer
  • API transfer.

Transition: soft landing penalty period

For VAT return periods beginning between 1 April 2019 and 31 March 2020, penalties will not be charged if businesses don’t have digital links between software programmes. This means ‘cut and paste’ will be acceptable while businesses update their systems. However, from 2020, HMRC will penalise non-compliance.

The transfer of VAT return data to bridging software to make submission to HMRC must always be digital, and is excluded from the soft landing provisions.

Exemptions

Under MTDfV, only a small handful of businesses are exempt. Please contact us if you believe your business may be exempt. Businesses will be able to make a right of appeal against a HMRC refusal of exemption.

How we can help

If you are in the Chesterfield area, please do contact us for information on MTDfV.

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After completing her A-Levels in 2017, Rebecca started her career in accounting by joining the Page Ivy team. Since then she has completed levels 2 and 3 of the AAT qualification and is currently studying towards level 4.

In the office, Rebecca works with our clients to assist them in preparing their VAT returns, assists with Xero Cloud-based bookkeeping and Accounting and is also trained in all matters of payroll.

In her spare time, Rebecca likes to, spend time with her friends and family, train dogs and more recently, has started to learn Spanish.

Since school Charlie has always had an interest in accountancy and followed up on his career aspirations by joining Page Ivy in 2017.

After three years of studying, Charlie is nearing completion of his AAT level 4 qualification and is looking to start his ACCA training imminently.

Charlie deals with the preparation of Limited Company, Sole trader and Partnership accounts along with preparing VAT and MGD returns.

In his spare time, Charlie enjoys watching football and spending time with his partner, friends, and family.

Danielle joined the Page Ivy team back in 2013 as an AAT Trainee, now qualified she is responsible for managing our Payroll  Bureau.

Her role includes processing weekly, bi-weekly, and monthly payroll runs, corresponding with HMRC on behalf of our clients,  preparing and submitting CIS 300 returns, assisting clients with all areas of payroll, HR, and Administration.

In her spare time, Danielle enjoys climbing, spending time with family and friends, and going on long country walks with her partner and dog.

Declan is the newest member of the Page Ivy team, starting with us in 2020.

Declan is currently studying towards level 2 of his AAT Apprenticeship and in the office, is getting to grips with data entry and analysis.

In his spare time, Declan enjoys country walking with his family and dog, sports events and more recently, learning to play the piano!

Megan joined our team in 2014 and has been ensuring that the Page Ivy office runs smoothly ever since.

Her role includes managing the team and their diaries,  handling client queries, and assisting with Administration.

Megan is a Xero certified Payroll advisor, meaning that when Danielle is on leave, Megan is on hand to run our payroll department.

Megan has two children, Isabella and Felicity, who like to keep her busy! In her spare time, she likes to keep fit, spend time with her family and online shop!

Abby started her career in accounting in 2009, working for a small practice in Chesterfield, alongside studying for her AAT qualification.

After three short years, in 2012 the opportunity arose to become Director of Page Ivy Accountants and she hasn't looked back!

Building long-lasting client relationships are of utmost importance to Abby, she has a passion for providing a high level of customer service and ensuring that our clients feel valued.

Abby is responsible for overseeing the preparation of VAT returns and MGD return prepared by the Page Ivy team; along with providing personal tax advice to a wide range of clients.

 

In her spare time, Abby enjoys, traveling, reading, and going to the gym.

Edward joined the team as a school leaver in 2012.  From here he went on to study Business Administration, AAT, and finally progressed on to complete his  ACCA qualification 2019.

Edward is a knowledgable, pro-active Senior accountant, who prides himself on providing high quality, in-depth, technical advice in a manner that is easily understood by his clients.

He is responsible for the preparation of Sole trader, Partnerships, and Limited Company accounts. As well as monthly and quarterly management accounts and conducting business reviews.

In his spare time, Edward likes to spend time with his friends and family,  spending time in his local pub and watching Derby FC collect 3 points.

 

Gareth started his career in accountancy in 2002. Since then he has worked in both small and medium-sized accountancy practices, working with a variety of clients from small businesses to advising quoted companies on Corporate Tax compliance and specialist claims, such as for Research and Development allowances. He places high importance on technical expertise, believing this to be essential to ensure clients can be safe in the knowledge they are fully compliant with HMRC’s requirements while minimising their tax liabilities. This is reflected in him being a fully qualified member of the Chartered Institute of Taxation, and a fellow of the Institute of Chartered Accounts in England and Wales.

He joined Page Ivy in 2012, since then he has taken responsibility for overseeing the preparation of clients Sole Trader, Partnership and Limited company accounts, as well as clients personal Self Assessment Tax Returns.

Alongside Abby he hopes to continue to develop both the technical expertise within the firm, and see the business continue to grow from strength to strength.

Outside of work Gareth has served as deputy leader of the town council, enjoys eating out, and fishing.

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