Making Tax Digital (MTD) for VAT from 1 April 2019

Making Tax Digital (MTD) is a fundamental change to the administration of the UK tax system. It affects how businesses and other organisations; agents and individuals maintain their accounting and tax records and how they transact and communicate with HMRC.  This is designed to make the UK tax system effective, efficient and easier for taxpayers.

All VAT registered businesses with turnover exceeding the VAT threshold of £85,000 now need to comply with MTD for VAT. Taxable turnover includes standard rated, reduced rated and zero-rated supplies but excludes outside the scope and exempt supplies. A rolling 12-month period is to be considered when determining whether taxable income exceeds the £85,000 threshold.

MTD obligations for VAT started with effect from the first VAT return period, beginning on or after April 1, 2019. The relevant periods to consider for businesses that file quarterly are:

VAT Stagger Check Taxable
First MTD VAT Return
Mar/Jun/Sep/Dec Year to 31 March 2019 Quarter to 30 June 2019
Apr/Jul/Oct/Jan Year to 30 April 2019 Quarter to 31 July 2019
May/Aug/Nov/Feb Year to 31 May 2019 Quarter to 31 August 2019

VAT returns for businesses within the scope of MTD have to be filed using third-party commercial software; there will be no keying-in of values into HMRC’s online VAT100 form. VAT-registered businesses with turnover below the VAT threshold can voluntarily opt-in to MTD for VAT.

Records have to be kept digitally which means either using MTD-approved accounting software, or spreadsheets in conjunction with other software which use APIs, to allow a flow of data from the business to HMRC (and vice versa). Transactions need to be analysed in accordance with the categories on the current self-assessment return. Businesses are not be required to keep digital copies of their receipts – it is the transactions that need to be stored digitally.

Crowthers Chartered Accountants has already moved a large number of clients’ VAT work to digital systems due to MTD with programmes such as KashFlow and Xero being utilised to provide cloud-based accounts package solutions. This move has really helped Crowthers to focus on tax planning for our clients, as records are more accessible and kept up-to-date.

As you would expect, Crowthers Cloud Bookkeeping services incorporate full compliance with MTD. Please visit our Cloud Bookkeeping team page for further details.